CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS
Language worksheet 29.1 answers
Revision
3 Government Policy
Fiscal deficit
Fiscal surplus
Central bank increases
Interest rates.
Government announces
an expansion of the
railway network.
Government increases
spending on education.
Government announces
tariffs on all imported
dairy goods.
Government subsidises
the steel industry.
Government purchases
foreign currency
to weaken their
own currency.
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Cambridge International AS & A Level Economics – Vlachonikolis, Collins & Croft © Cambridge University Press 2021
Impact
Increases aggregate
demand, may encourage
consumers to purchase
more imports.
Decreases aggregate
demand and spending.
Decreases
aggregate demand.
Increases investment and
expands aggregate supply.
Improves skills and makes
firms more competitive.
Reduces demand for
imports and consumer
welfare. May prompt a
trade war.
Helps employment and
preserves jobs, stops
potential imports.
A weak currency
increases exports and
decreases imports.
Effect on current account
If spending is increased on
imports, it will reduce a
surplus on the current
account or increase
a deficit on the
current account.
May reduce spending on
imports and reduce a
current account deficit.
May reduce spending on
imports and reduce a
current account deficit. It
may also increase the
strength of the currency
and make imports
cheaper and exports
more expensive.
Improved structure may
reduce a current account
deficit in the long run.
May encourage spending
on domestic products as
they are more
competitive. May reduce
deficit in the long run.
May reduce current
account deficit.
Maintains the status quo
in the short term of the
current account. In long
term exports of steel
may grow.
Will decrease a deficit and
increase a surplus on the
current account.
Example
The USA often runs a fiscal
deficit and has a deficit on
the current account of the
balance
of payments.
Germany often runs a
fiscal surplus, has high
savings, and the highest
current account surplus.
The UK uses interest rates
to reduce deficits on the
current account.
HS2 in the UK or the
‘Bullet train’ network
in China
Coursebook Activity 29.1
on Zimbabwe
Coursebook Activity 26.2
on Norway
Coursebook Chapter
26 Economics in context
on Russia
Coursebook Chapter
29 Economics in context
on China
 CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS

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Cambridge International AS & A Level Economics – Vlachonikolis, Collins & Croft © Cambridge University Press 2021