TUTORIAL 3 14 Aug 2023 EECF1624/5 EFEC2624

1. Define nationalisation and privatisation.

2. What are the main elements of fiscal policy and what is the main instrument of fiscal policy?
3. Distinguish between expansionary and contractionary fiscal policy.
4. Define the budget deficit and explain how it is related to the public debt.
5. What are the main determinants of government spending in the economy? Also indicate the most
important components of government spending in South Africa.
6. What are the three basic ways in which the government can fund its spending?
7. Distinguish between tax avoidance and tax evasion.

8. Which of the following answers best reflects the ability-to-pay philosophy of taxation?
a. Property tax.
b. Progressive income tax.
c. Excise tax on gasoline.
d. Excise tax on cigarettes.

9. Sharon pays a tax of R4,000 on her income of R40,000, while Brad pays a tax of R1,000 on his
income of R20,000. This tax is:
a. regressive.
b. progressive.
c. proportional.
d. a flat tax.

10. Generally, most economists feel that a sales tax like VAT is:
a. regressive.
b. proportional.
c. progressive.
d. fair.

11. Which of the following statements is false?

a. The largest source of state and local governments’ tax revenue is sales and excise taxes.
b. The largest source of federal government tax revenue is individual income taxes.
c. A sales tax on food is a regressive tax.
d. A proportional tax is equal to a fixed dollar amount.

Exhibit 3-1 Marginal tax rate lines: Refer to the diagram to answer questions 12 and 13.

12. In Exhibit 3-1, line A represents a(n):

a. regressive tax.
b. progressive tax.
 TUTORIAL 3 14 Aug 2023 EECF1624/5 EFEC2624

c. proportional tax.
d. ability-to-pay tax.

13. In Exhibit 3-1, line B represents a:

a. regressive tax.
b. progressive tax.
c. proportional tax.
d. flat tax.

14. What's the best explanation of crowding out?

a. Private investment preventing public investment
b. Government taxing and spending
c. Slow economic growth due to borrowing crowding out investment
d. Public sector spending and borrowing reducing private investment and consumption

15. What type of government policy can cause crowding out?

a. There is no policy like this
b. Monetary policy
c. Conservative fiscal policy
d. Expansionary fiscal policy

16. What happens to interest rates if government borrowing increases?

a. Nothing
b. Interest rates for public spending increases
c. Interest rates for private spending increases
d. Interest rates for public and private spending increases