In many countries increased government spending is regarded as a cause of economic growth. It is sensible, therefore, for a government to spend more to increase economic growth as it is good for its country. To what extent do you agree with this argument?
Exam No： 9708_s24_qp_43 Year：2024 Question No：4
Answer:
In many countries increased government spending is regarded as a cause of economic growth. It is sensible, therefore, for a government to spend more to increase economic growth as it is good for its country.
To what extent do you agree with this argument?
Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question.
AO1 and \(A O 2\) out of 14 marks.
AO3 out of 6 marks.
Indicative content
Responses may include:
AO1 Knowledge and understanding and AO2 Analysis
- \(\quad\) Comment on the meaning of economic growth and its measurement and a discussion on the effect of increased government spending. Extra government spending should increase total demand by consumers and businesses, which could allow investment, research, further production and economic growth.
- Distinguish between actual and potential growth
- Reference to the multiplier.
- However, if there is limited spare productive capacity, extra spending might not result in further output but in rising prices, or increased imports with consequent effects on the balance of payments and long-term international competitiveness.
- Also depends on the amount of capital, education and skills of work-force size of work-force, availability of resources. The ability to combine the factors of production. Access to finance, types of business structure available FDI. Access to new technology.
AO3 Evaluation (max 6 marks)
- \(\quad\) Some evaluation would be included in the above discussion. For the evaluation marks there should be a recognition of both sides of the argument and a final conclusion as to which is dominant.
- Issues may include higher prices; potential for income inequality; environment degradation; over consumption of scarce resources.
To what extent do you agree with this argument?
Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question.
AO1 and \(A O 2\) out of 14 marks.
AO3 out of 6 marks.
Indicative content
Responses may include:
AO1 Knowledge and understanding and AO2 Analysis
- \(\quad\) Comment on the meaning of economic growth and its measurement and a discussion on the effect of increased government spending. Extra government spending should increase total demand by consumers and businesses, which could allow investment, research, further production and economic growth.
- Distinguish between actual and potential growth
- Reference to the multiplier.
- However, if there is limited spare productive capacity, extra spending might not result in further output but in rising prices, or increased imports with consequent effects on the balance of payments and long-term international competitiveness.
- Also depends on the amount of capital, education and skills of work-force size of work-force, availability of resources. The ability to combine the factors of production. Access to finance, types of business structure available FDI. Access to new technology.
AO3 Evaluation (max 6 marks)
- \(\quad\) Some evaluation would be included in the above discussion. For the evaluation marks there should be a recognition of both sides of the argument and a final conclusion as to which is dominant.
- Issues may include higher prices; potential for income inequality; environment degradation; over consumption of scarce resources.
Knowledge points:
10.2.3 relationship between growth and inflation
4.4.4 causes of economic growth
5.2.5.1 types of spending: capital (investment) and current
5.2.5.2 reasons for government spending
Solution:
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