Photo AI
State two economic effects which an increasing level of unemployment may have on the Government's Current Budget Deficit - Leaving Cert Economics - Question 5 - 2009
Question 5
State two economic effects which an increasing level of unemployment may have on the Government's Current Budget Deficit. Effect 1: Effect 2:
Worked Solution & Example Answer:State two economic effects which an increasing level of unemployment may have on the Government's Current Budget Deficit - Leaving Cert Economics - Question 5 - 2009
Step 1
Effect 1: Social Welfare Payments
Answer
An increasing level of unemployment leads to a rise in social welfare payments. As more individuals become unemployed, the government is obligated to provide financial support, which results in an increase in expenditure. This elevates the budget deficit because more funds are allocated to support those without jobs.
Step 2
Effect 2: Reduced Income Tax Revenue
Answer
With a rising unemployment rate, fewer individuals are earning an income, which directly reduces the income tax revenue collected by the government. This drop in revenue further exacerbates the budget deficit as the government faces decreased fiscal capacity while still needing to finance public services and welfare programs.