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Government Spending – AD
Activity 1 – Fill in the gaps from the starting point to the end.

Start End

A decrease in the Increase in

base interest rate consumption (C) as
from 0.1% to a component of
0.05%. AD.

A decrease in the Decrease in

base interest rate consumption.
from 0.1% to
0.05%.

Access to credit Increase in

cards for consumption.
households
increase.

Decrease in income Increase in

tax from 20% for consumption.
bottom rate to 18%.

Unemployment Decrease in
rate increases from consumption.
4.5% to 4.8%.

Activity 2 – Government Spending Questions – What are the main expenditures versus receipts
for the government?

Activity 3 – What are the following categories of government spending? What is included?
Capital Expenditure -
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Current Expenditure -
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Transfer Payments -
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Activity 4 – Define the following terms.
Budget deficit -
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Balanced budget -
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Budget surplus -
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Activity 4 – Explain the relationship between the two.
What is the relationship between a budget deficit and national debt?
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Activity 5 – Categorise the following types of spending

Activity 6 – Draw a Business Cycle Diagram and explain what type of expenditure you would
see from the government at each point e.g. capital expenditure
Activity 7 – Why is a fiscal deficit not always a negative?

Activity 8 – What happens if a government doesn’t pay?

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Activity 9 – Laffer Curve. Express the relationship between the tax revenue (y-axis) and tax rate
(x-axis).