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AS economics

Hi, I'm struggling to answer this 2019 past paper question from an AS macro paper.

Explain how an increase in government spending could affect the national debt (10 marks)

I've started by defining gov. spending and national debt. However I want to go onto explaining the relationship between national debt and budget position. Also I want to go on to describe impact of increased government spending on the national debt, assuming no corresponding
increase in taxation. Does anyone think they could give me a few pointers on how to word an answer to this question as I know what I want to write about...
Reply 1
Avatar for KH29
KH29
12
You started your question well by defining Government Spending and National Debt . So good one on that.

- One , don't do National Debt and Budget Position - I feel that's far too confusing and a bit too much waffle for this stage - but if you understood and you covered it go ahead.
- " impact of increased government spending on the national debt, assuming no corresponding increase in taxation " - If the Government is in debt, they will need to increase taxation to close the gap on budget deficit - if they don't , the budget deficit will grow because of the increase in Government Spending. Remember to DEFINE Budget Deficit
- I can give you a hint to add to your Answer. Think about the Multiplier Effect.
-Add a Diagram - this is on the Mark Scheme for Level 2/3 (I assume you do AQA) - I been told by my teachers AND EconPlusDal to draw a diagram and use it as better way to explain .

Also one more thing about Budget Deficit.
- Please do NOT thing that Budget Deficit is when there is more debt than Government Spending - There can be no increase in Government Spending but the debt is still there. Also, there no increase in debt doesn't mean government spending is increasing , unless stated / assumed , the deficit is still there regardless.

I would recommend you to :

- Check the Mark Scheme to help you understand how you structure your question . They separate the marks into level , so you of course want to achieve LEVEL 3.
- Watch this video by EconPlusDal - this has personally helped me alot : https://www.youtube.com/watch?v=97vUoDPSTYQ

All the best.
(edited 2 years ago)
Reply 2
Avatar for andy7845
andy7845
OP
8
Original post by sivan10
You started your question well by defining Government Spending and National Debt . So good one on that.

- One , don't do National Debt and Budget Position - I feel that's far too confusing and a bit too much waffle for this stage - but if you understood and you covered it go ahead.
- " impact of increased government spending on the national debt, assuming no corresponding increase in taxation " - If the Government is in debt, they will need to increase taxation to close the gap on budget deficit - if they don't , the budget deficit will grow because of the increase in Government Spending. Remember to DEFINE Budget Deficit
- I can give you a hint to add to your Answer. Think about the Multiplier Effect.
-Add a Diagram - this is on the Mark Scheme for Level 2/3 (I assume you do AQA) - I been told by my teachers AND EconPlusDal to draw a diagram and use it as better way to explain .

Also one more thing about Budget Deficit.
- Please do NOT thing that Budget Deficit is when there is more debt than Government Spending - There can be no increase in Government Spending but the debt is still there. Also, there no increase in debt doesn't mean government spending is increasing , unless stated / assumed , the deficit is still there regardless.

I would recommend you to :

- Check the Mark Scheme to help you understand how you structure your question . They separate the marks into level , so you of course want to achieve LEVEL 3.
- Watch this video by EconPlusDal - this has personally helped me alot : https://www.youtube.com/watch?v=97vUoDPSTYQ

All the best.

Wow thank you so much! This is so kind of you I really appreciate it :smile: You mentioned the multiplier effect? I could possibly illustrate the effect on a diagram... However could you please explain how that would link to the question, because I thought that was related to an initial injection (gov spending) into the economy which would cause a bigger final increase in national income.

Thank you so much for the pointers and video too, that was extremely helpful :smile:
Reply 3
Avatar for KH29
KH29
12
Original post by andy7845
Wow thank you so much! This is so kind of you I really appreciate it :smile: You mentioned the multiplier effect? I could possibly illustrate the effect on a diagram... However could you please explain how that would link to the question, because I thought that was related to an initial injection (gov spending) into the economy which would cause a bigger final increase in national income.

Thank you so much for the pointers and video too, that was extremely helpful :smile:

Its good to hear it has helped.

Now one thing , you need to remember Government Spending is one of the five components of Aggregate Demand (C + I + G + [X-M] ). Should ATLEAST ONE off Consumption , Investment , Government Spending or Exports increase, the initial increase will be greater than the previous increase on Aggregate Demand as a whole - so this is the summary of a multiplier effect.

This will eventually become a "loophole". The whole cycle continues to repeat again and again and Aggregate Demand continues to increase - we need to assume Govt. Spending is the one that continues to increase and increase. This adds on to the national debt.

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