The table below shows macroeconomic data for a hypothetical economy over a three-year period:
YearReal GDP Growth (%)Government Spending (% of GDP)Tax Revenue (% of GDP)CPI Inflation Rate (%)Year 1+1.5%41.0%38.0%1.8%Year 2−2.0%45.0%35.0%0.9%Year 3+4.5%38.0%39.0%3.2% \begin{array}{|c|c|c|c|c|} \hline \text{Year} & \text{Real GDP Growth (\%)} & \text{Government Spending (\% of GDP)} & \text{Tax Revenue (\% of GDP)} & \text{CPI Inflation Rate (\%)} \\ \hline \text{Year 1} & +1.5\% & 41.0\% & 38.0\% & 1.8\% \\ \hline \text{Year 2} & -2.0\% & 45.0\% & 35.0\% & 0.9\% \\ \hline \text{Year 3} & +4.5\% & 38.0\% & 39.0\% & 3.2\% \\ \hline \end{array} YearYear 1Year 2Year 3Real GDP Growth (%)+1.5%−2.0%+4.5%Government Spending (% of GDP)41.0%45.0%38.0%Tax Revenue (% of GDP)38.0%35.0%39.0%CPI Inflation Rate (%)1.8%0.9%3.2%Which of the following is the most likely explanation for the change in the government's budget balance between Year 1 and Year 2?
The government implemented contractionary discretionary fiscal policy to control inflation.
Automatic stabilizers operated to increase government expenditure and reduce tax receipts.
The structural budget deficit increased due to discretionary expansionary fiscal policy.
The economy experienced a cyclical budget deficit in Year 3 because of a negative output gap.
245 exam-style questions on AQA A Level Economics 2.5 Fiscal policy and supply-side policies, covering 2.5.1 Fiscal policy and 2.5.2 Supply-side policies. Each one has a worked solution and a mark scheme showing where the marks go.