Two fiscal packages cost the government the same amount. Package X cuts income tax for high earners, while Package Y increases benefits for low-income households. Why might Package Y increase total spending by more?
Benefits are an indirect tax
Lower-income households may spend a larger proportion of the additional income
High earners are not allowed to consume
Package Y cannot affect the budget balance
30 exam-style questions on OCR GCSE Economics 3.5 Fiscal policy, covering 3.5.1 Government spending and revenue, 3.5.2 Budget balance, surplus and deficit, 3.5.3 What is fiscal policy, 3.5.4 Calculate effects of taxes and spending, 3.5.5 Analyse effects of taxes and spending, 3.5.6 Costs and benefits of fiscal policy, and 3.5.7 Redistributing income and wealth. Each one has a worked solution and a mark scheme showing where the marks go.