Cambridge IGCSE · Economics (0455)

Fiscal policy: Practice Questions

5 multiple-choice questions marked as you go, and 5 written questions with worked solutions. All on Fiscal policy.

10 questions22 marksFree, no account

Question 1

1 mark

Suppose a government is facing a persistent budget deficit and aims to reduce it. Which combination of fiscal policy measures would most effectively help to achieve this aim?

Question 2

1 mark

A government decides to implement a fiscal policy by significantly increasing its spending on education and healthcare services. Which macroeconomic aim is this policy primarily intended to achieve?

Question 3

1 mark

A government decides to switch from a system of progressive income tax to a flat-rate (proportional) income tax system that collects the same total amount of tax revenue. What is the most likely economic consequence of this change?

Question 4

1 mark

Which of the following is classified as an indirect tax?

Question 5

1 mark

Which of the following describes a regressive tax system?

Question 6

2 marks

Define the term regressive tax and provide one example of such a tax.

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Question 7

2 marks

Identify two reasons why a government might choose to increase its spending on public infrastructure, such as roads and bridges.

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Question 8

5 marks

Explain the difference between capital expenditure and current expenditure in a government budget, providing one example for each.

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Question 9

3 marks

Governments use various forms of taxation to fund public services and influence economic behavior.

(a) Distinguish between direct taxes and indirect taxes, providing one example of each.
(b) Explain one reason why a government might increase taxes on demerit goods, such as tobacco or alcohol.

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Question 10

5 marks

In many economies, the government uses a progressive tax system for personal income.

(a) Explain the difference between a progressive tax and a regressive tax.
(b) Analyze how a progressive tax system can help a government achieve the macroeconomic aim of redistribution of income.

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