ECONOMICS

SECTION A
Read the following passage, and then answer the questions which follow on
Page three
.
George Osborne urged to scrap 50p tax rate
The new 50p tax rate introduced in 2011 on incomes above £150,000 has been
criticised for punishing entrepreneurship. Some leading economists believe that it
should be scrapped to boost growth, amid fresh concerns that the UK is slipping
towards a
double-dip recession
. They believe that it gives the UK one of the highest
personal tax regimes in the industrial world. This could make the UK less competitive
internationally and a less attractive destination for both foreign investment and talented
workers. This is particularly damaging when the UK needs to create new businesses in
new industries.
In a speech to the City, the Chancellor, George Osborne, insisted that the government
would not waver from its tough fiscal approach. He said early action to tackle the budget
deficit had put Britain ahead of the curve and in control of its economic future. He
made it clear that the government had no intention of scrapping the tax in the short-
term, although it would be reviewed in 2013, if it is not raising significant revenue.
Critics argue that the tax will not raise the revenues expected because tax avoidance,
tax evasion and entrepreneurs leaving the UK will lead to a disappointing tax return.
According to the Institute of Fiscal Studies (IFS), the highest rate which can be
introduced without a reduction in tax revenue is about 40%.
The fairness and efficiency of the tax are also much debated. Those in favour of the
tax argue that it is right that those on highest incomes should pay this top rate of tax
particularly when those on low and middle incomes are struggling. They have to cope
with the effects of the VAT rise, rising petrol prices and the
squeeze on real incomes
.
On the other hand, it is pointed out that this tax will only fall on 1% of tax payers who
will be paying 24% of all income tax collected. However, if they do not pay their taxes,
then it is poorer people who may suffer.
Adapted from an article in The Guardian 7th September, 2011

1.
Explain what is meant by the following terms as used in the passage.
(
a
)
Double-dip recession (line 4).
(
b
)
Squeeze on real incomes (line 21).
2.
Explain how the 50p rate of tax may harm the UK economy’s rate of economic
growth.
3.
Justify the UK Government’s belief that its tough fiscal approach is necessary in
the current economic climate.
4.
(
a
)
Other than rising fuel duty, explain
2
reasons why petrol prices have risen.
(
b
)
Use a diagram to show the effect of an increase in fuel duty on the market for
petrol.
5.
Discuss whether the 50p tax rate fulfils the principles of good taxation.
6.
If the UK Government were to scrap the 50p tax rate, suggest and justify an
alternative option for raising tax revenue.
Page three

Attempt TWO of the six questions set.
Each question carries 25 marks.
1.
(
a
)
Compare the characteristics of perfect competition and monopolistic
competition.
(
b
)
Using diagrams to support your answers:
(i)
explain why a firm in perfect competition may make abnormal profits in
the short run;
(ii)
explain why a firm in monopolistic competition can make only normal
profits in the long run.
(
c
)
Explain why a few large firms can dominate some markets whilst small firms
thrive in other markets.
2.
Despite CPI inflation hitting a peak of 5·2% in 2011, the Monetary Policy
Committee (MPC) introduced a second round of quantitative easing.
(
a
)
(i)
Explain the term quantitative easing.
(ii)
Explain how quantitative easing is expected to influence the level of
economic activity.
(
b
)
Explain the reasons for the MPC deciding to undertake a second round of
quantitative easing.
(
c
)
Discuss why some economists believe that quantitative easing may be
ineffective or even harmful.
3.
Youth unemployment in the UK passed the one million mark in 2011.
(
a
)
Explain why the rate of youth unemployment in the UK is higher than the
national average.
(
b
)
Describe the economic costs of youth unemployment to the individual and to
the UK economy.
(
c
)
Discuss policies which the UK government might introduce to address the
issue of youth unemployment.

economic

Order Description

the report is about Australia economic research and 1. Explain the differences between fiscal and monetary policy.
2. Which one do you think is the most effective in the current Australian Economic?
Environment? Give reasons for your answer.
The use of tables and graphs will enhance the assignment.