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Table of Contents

  1. Topic pack - Macroeconomics - introduction
  2. 2.1 The level of overall economic activity (notes)
  3. 2.1 The level of overall economic activity (questions)
  4. Section 2.2 Aggregate demand and supply (notes)
  5. Section 2.2 Aggregate demand and supply (simulations and activities)
  6. 2.2 Aggregate Demand and Aggregate Supply (questions)
  7. 2.3 Macroeconomic objectives (notes)
  8. Low Unemployment
    1. Low Unemployment
    2. What the data says
    3. The meaning of unemployment
    4. Case study - regional variation
    5. Consequences of unemployment
    6. Case study - tougher for men
    7. Types and causes of unemployment
    8. Disequilibrium unemployment
    9. Equilibrium unemployment
    10. Policies to reduce unemployment
    11. Low and stable inflation
    12. Low and stable inflation (notes)
    13. The meaning and measurement of inflation
    14. A consumer price index
    15. Finding out more about consumer price index weights
    16. Problems with measuring inflation
    17. Inflation - videos
    18. Consequences of inflation
    19. Hyperinflation
    20. The consequences of deflation
    21. Types and causes of inflation: demand-pull inflation
    22. Types and causes of inflation: cost-push inflation
    23. Case Study - car prices in Trinidad
    24. Possible relationships between unemployment and inflation
    25. PlotIT - Phillips curve
    26. Phillips curve - long-run
    27. Natural rate of unemployment
    28. NAIRU
    29. Economic growth
    30. Economic growth (notes)
    31. Causes of economic growth
    32. Economic growth and the PPF (1)
    33. Economic growth and the PPF (2)
    34. Economic growth and the business cycle
    35. Economic growth and the aggregate supply curve
    36. Consequences of economic growth
    37. Equity in the distribution of income
    38. Equity in the distribution of income (notes)
    39. Indicators of income equity
    40. Poverty
    41. The poverty line: An Indicator of Relative poverty
    42. The causes of poverty
    43. The role of taxation in promoting equity
    44. The role of taxation in promoting equity (notes)
    45. Other methods of promoting equity
  9. 2.3 Macroeconomic objectives (questions)
  10. 2.4 Fiscal policy (notes)
  11. 2.4 Fiscal policy (questions)
  12. 2.5 Monetary policy (notes)
  13. 2.5 Monetary Policy (questions)
  14. Section 2.6 Supply-side policies (notes)
  15. 2.6 Supply-side policies (questions)
  16. Print View

Other methods of promoting equity

Syllabus: Explain that governments undertake expenditures to provide directly, or to subsidize, a variety of socially desirable goods and services (including

  • health care services,

  • education, and

  • infrastructure that includes sanitation and clean water supplies),

thereby making them available to those on low incomes.

Transfer payments

Tax revenues may be spent on a huge range of items (including the above). However, two of the most significant areas for government expenditure in developed economies are:

  • Pensions
  • Benefits to those out of work, sick, young or others unable to care for themselves (social security payments)

Benefits (social security) and pensions are known as transfer payments because they take income from one set of people (eg those in work) andtransfer these funds (ie there is no transaction involved) to other sets of people (eg old, infirm, unemployed etc) who are seen to be unable to look after themselves adequately.

Transfer payments

A payment from a government to its citizens, for which no good or service is received in exchange. Governments use transfer payments as means of income redistribution by making payments under social welfare programmes, such as social security, old age or disability pensions and unemployment benefits. Transfer payments are excluded when calculating gross national product. A significant proportion of government expenditure is on transfer payments.

Syllabus: Explain the term transfer payments, and provide examples, including old age pensions, unemployment benefits and child allowances.

It is the combination of transfer payments and progressive taxes that has the most impact on income distribution.

Transfer payments are paid to the poorest and most vulnerable members of society and so will have a significant redistribution effect.

By giving people benefits/social security payments governments are:

  1. helping the less fortunate live more financially secure lives.
  2. increasing injections into the circular flow of income which will be subject to a multiplier effect increasing aggregate demand in the economy.
  3. expecting some of the expenditure to re-enter the government funds via the taxes benefit recipients pay.

Provision of Social infrastructure

Governments spend tax revenues directly on providing social infrastructure including:

  • Education
  • Health service
  • Defence

By making services, such as education and health servies, available to people on low incomes, at zero or reduced prices, poverty is reduced and a more equitable distribution of income is achieved. This will certainly be the case if public servies are funded through a progressive tax structure.

Government subsidy

Government may provide subsidies to those on low incomes to fund consumption of certain goods and services provided by the private sector, such as concessionary bus and train fares.

Syllabus: Evaluate government policies to promote equity (taxation, government expenditure and transfer payments) in terms of their potential positive or negative effects on efficiency in the allocation of resources.

Remember: To evaluate, is to `Make an appraisal by weighing up the strengths and limitations`, so you need to be prepared to:

  • look at strengths and weaknesses of less intervention (less tax and benefits, smaller government)
  • look at strengths and weaknesses of intervention (greater taxes and benefits, more government)
  • look at strengths and weaknesses of each approach compared with each other

For an excellent presentation of some of the arguments about taxation as a policy you can look at

Paul Krugman Versus Greg Mankiw On The Taxation Of Capital Income

Basically tax the rich more they will not notice and the poor need help (Krugman)


Tax the rich less because they then will have the incentive to work harder and everyone will benefit from the trickle down effect (Mankiw)

Oxfam Report on Income Inequality Including recommendations (The Guardian)

May 2013 TZ1

3. (a) Explain why the market system may not result in an equitable distribution of income. [10 marks]

    (b) Evaluate government policies to promote equity in terms of their effects on efficiency in the allocation of             resources. [15 marks]

Nov 2012

2. (a) Explain how a government could bring about a more equal distribution of income. [10 marks]

    (b) Evaluate the effectiveness of government policies designed to reduce inequalities in income. [15 marks]

May 2011 TZ2

2. (a) Explain two policies a government might use to redistribute income. [10 marks]

    (b) “Measures to promote greater income equality should be a key feature of government economic policy.” Evaluate     this proposition. [15 marks]