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Help with AS Economics (Macro) please

Hi all,

I was doing some MCQs and the following statements (in bold) were correct answers. Could someone please explain why they are correct?

Why is lower tax rates on income most like to be regarded as a supply-side cause of higher economic growth? I would have thought that income tax is a fiscal policy and that this would affect consumers and hence demand.

An economy is experiencing inflation and a balance of payments deficit on current account. All other things being equal, a fall in government spending is most like to reduce both inflation and the balance of payments deficit? i understand that a fall in government spending would cause AD to reduce and hence shift left and hence reduce inflationary pressure, but I don't understand why a fall in government spending would reduce the balance of payments deficit? Surely this would not have much of an effect as balance of payments deficit is caused by import value being larger than export value?

Thank you!
Just an As student as well but with the first one, you could argue that lower income tax is a supply side factor as it raises incentives to work and therefore may lead to an increase in Labour productivity and efficiency I think.

Reduced inflationary pressures would help to reduce the deficit because it would make British goods more competitive against other countries, as the lower the inflation rate the cheaper the good is to buy so for other countries our exports at a lower price are more attractive, therefore the demand for our exports would increase and if the value of exports becomes greater than the value of imports, the deficit improves
Original post by physicsamor
Just an As student as well but with the first one, you could argue that lower income tax is a supply side factor as it raises incentives to work and therefore may lead to an increase in Labour productivity and efficiency I think.

Reduced inflationary pressures would help to reduce the deficit because it would make British goods more competitive against other countries, as the lower the inflation rate the cheaper the good is to buy so for other countries our exports at a lower price are more attractive, therefore the demand for our exports would increase and if the value of exports becomes greater than the value of imports, the deficit improves


Hi are you on Edexcel A for AS Economics too?

Thanks a lot for your reply!


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Original post by londoncricket
Hi are you on Edexcel A for AS Economics too?

Thanks a lot for your reply!


Posted from TSR Mobile


I'm on AQA :smile: If you have any more questions I'd be happy to help
Original post by physicsamor
I'm on AQA :smile: If you have any more questions I'd be happy to help


Ah okay. I don't have any more for the minute: will PM you if I need. Thank you for your help! :smile:

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