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The following figures were presented in Budget 2018: Government Current Income €67.4 bn Government Current Expenditure €70.1 bn (i) Is the government planning a budget deficit or budget surplus? Explain your answer - Leaving Cert Economics - Question 5 (a) - 2018
Question 5 (a)
The following figures were presented in Budget 2018: Government Current Income €67.4 bn Government Current Expenditure €70.1 bn (i) Is the government planning a bu... show full transcript
Worked Solution & Example Answer:The following figures were presented in Budget 2018: Government Current Income €67.4 bn Government Current Expenditure €70.1 bn (i) Is the government planning a budget deficit or budget surplus? Explain your answer - Leaving Cert Economics - Question 5 (a) - 2018
Step 1
Is the government planning a budget deficit or budget surplus? Explain your answer.
Answer
To determine whether the government is planning a budget deficit or surplus, we can compare the government current income to the government current expenditure:
- Government Current Income: €67.4 billion
- Government Current Expenditure: €70.1 billion
Calculating the difference:
Since the expenditure exceeds the income by €2.7 billion, the government is planning a budget deficit because it is spending more than it is bringing in from current income.
Step 2
State the effect which Budget 2018, calculated in part (i) above, will have on the national debt. Explain your answer.
Answer
The effect of Budget 2018 on the national debt will be an increase. Given that the government is planning a budget deficit of €2.7 billion, this amount must be borrowed to finance the gap between income and expenditure. As a result, the national debt will rise because the government needs to borrow funds to cover its expenses.
Step 3
State and explain one economic advantage and one economic disadvantage of increasing the national debt.
Answer
Economic Advantage: One advantage of increasing the national debt is that the current cost of borrowing is low. This encourages the government to invest in key services and infrastructure improvements without immediate burdening taxpayers.
Economic Disadvantage: Conversely, an economic disadvantage of increasing the national debt is the potential for increased annual interest repayments. As the debt grows, so too does the amount required to service that debt, which may lead to higher taxes or reduced public services in the future.