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The Irish Government’s Current Budget Deficit was €11.5 m in December 2010, resulting from Government Current Income of €36.9m and Government Current Spending of €48.4m - Leaving Cert Economics - Question 5 - 2011
Question 5
The Irish Government’s Current Budget Deficit was €11.5 m in December 2010, resulting from Government Current Income of €36.9m and Government Current Spending of €48... show full transcript
Worked Solution & Example Answer:The Irish Government’s Current Budget Deficit was €11.5 m in December 2010, resulting from Government Current Income of €36.9m and Government Current Spending of €48.4m - Leaving Cert Economics - Question 5 - 2011
Step 1
Explain each of the underlined terms.
Answer
Current Budget Deficit: This term refers to a financial situation where the government’s spending exceeds its income in a given period, indicating a shortfall in available funds. Essentially, it highlights the gap between the funds the government generates and its expenditure.
Government Current Income: This is the total income received by the government on a continuous or day-to-day basis. It encompasses various revenue streams such as taxes, fees, and other contributions that the government collects regularly.
Government Current Spending: This refers to the funds that the government utilizes for its ongoing operational and administrative activities on a continuous basis. It includes payments for public services, salaries of state employees, and other expenditures necessary for the day-to-day functioning of government.
Step 2
State two examples of Government Current Income and two examples of Government Current Spending.
Answer
Examples of Government Current Income:
- Direct tax revenue, such as income tax
- Indirect tax revenue, such as VAT
Examples of Government Current Spending:
- Salaries of all state employees
- Cost of running government departments
Step 3
Outline two economic reasons for the introduction of these charges.
Answer
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Revenue for Government: The introduction of water charges will help raise revenue for the state, ensuring that essential public services can be funded adequately.
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Evasion Eliminated: By implementing metered charges, it becomes impossible to evade payment, thereby securing a more reliable source of revenue for the government.
Step 4
Discuss two economic effects of these charges on households.
Answer
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Lower Standard of Living: The introduction of water charges may lead to increased financial burdens on households, especially those with lower incomes. This could result in reduced disposable income for families, affecting their overall standard of living.
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Increased Budgeting Needs: Households will need to adjust their financial planning and budgeting to account for these new charges, potentially leading to cutbacks in other areas of their spending.
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Step 8
State and explain two economic disadvantages which may result from this increase in Ireland’s National Debt.
Answer
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Opportunity Costs Involved: More funds being used to meet annual interest repayments mean that less is available for essential services and public investment, impacting overall economic growth.
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Risk to Future Financial Stability: Higher levels of national debt can lead to increased interest rates, forcing future governments to allocate larger portions of budgets to debt repayments rather than social or infrastructural improvements.