OxfordAQA International GCSE Economics: Fiscal and monetary policy (9214) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover sections 3.2.3.1 (fiscal policy) and 3.2.3.2 (monetary policy) of the OxfordAQA International GCSE Economics specification (9214), first teaching September 2023, first examined May/June 2025. All countries, currencies and figures are invented. Revise first with the study guide and revision notes. See also the course hub, the checklist, the government objectives practice and the free diagnostics.

Questions

1. Define fiscal policy. [2]

2. The table shows the budget of Country C for one year (illustrative, bn units). GDP is 190 bn units.

Revenue	bn	Spending	bn
Income tax	21	Health	15
Corporation tax	9	Education	13
VAT	17	Welfare	14
Other	8	Defence	5
		Interest on debt	4
		Other	6

(a) Work out the budget balance and say whether Country C has a deficit or a surplus. [2] (b) Show the balance as a percentage of GDP, to 2 decimal places. [2]

3. Explain how a cut in income tax could increase income and expenditure in an economy. [4]

4. Country D’s government raises its spending by 5 bn units. Assume that out of every extra 1 unit of income, 0.8 units is spent again in Country D. (a) Calculate the total increase in income. [2] (b) The share spent again falls to 0.5. Calculate the new total increase. [1] (c) Explain why the total is smaller in (b). [2]

5. Explain two consequences of a government running a budget deficit. [4]

6. Explain two consequences of a government running a budget surplus. [4]

7. Country E’s price index rises from 130.0 to 134.5. Its target for inflation is 2%. (a) Calculate the rate of inflation, to 2 decimal places. [2] (b) Explain how a rise in the interest rate could help to bring inflation back to target. [4]

8. The central bank of Country A raises its interest rate by 1.5 percentage points. (a) A household has a 90,000 unit variable-rate mortgage, which rises from 4% to 5.5%. Calculate the rise in annual interest. [2] (b) A saver has 12,000 units, and the savings rate rises from 2% to 3.5%. Calculate the rise in annual interest. [2] (c) A firm has a 150,000 unit loan, and its rate rises from 6% to 7.5%. Explain how this could change the firm’s investment decision. [2]

9. Country G cuts its interest rate and its currency, the dek, falls from 1 dek = 1.50 fen to 1 dek = 1.30 fen (the fen is a neighbour’s currency). An export costs 40 deks. (a) Find the export’s price in fen before the fall and after it. [2] (b) Work out the percentage change in that fen price, to 1 decimal place. [1] (c) Explain the effect of the lower interest rate on Country G’s balance of payments. [2]

10. Country H has high unemployment, weak growth and inflation below target. It is considering either an 8 bn unit increase in government spending or a cut in the interest rate. Assume 0.5 of each extra unit of income is spent again in Country H, and the economy has 10 bn units of spare capacity. Evaluate which policy the government should choose. [8]

11. Evaluate whether a government should aim for a budget surplus. In your answer, use this illustration: a surplus of 3 bn units is used to cut a national debt of 60 bn units, and the interest rate on the debt is 5%. [8]

Answers

1. The government’s use of spending [1] and taxation [1] to influence the economy. [2] Examiner insight: A definition needs both tools named; answers that mention only taxes, or that describe interest rates, describe the wrong policy.

2. (a) Revenue = 21 + 9 + 17 + 8 = 55 and spending = 15 + 13 + 14 + 5 + 4 + 6 = 57 [1]. Balance = 55 − 57 = −2 bn units, a deficit [1]. [2] (b) 2 ÷ 190 × 100 [1] = 1.05% of GDP [1]. [2] Examiner insight: Show both totals before subtracting, and state the word deficit or surplus; a bare negative number leaves the interpretation unstated.

3. Lower income tax raises households’ disposable income [1]. Households spend part of it, so consumption rises [1]. Firms sell more and pay more wages and profits, which become further income [1]. That income is spent again, so total income rises by more than the original cut [1]. [4] Examiner insight: Credit builds when each step leads to the next; separate statements such as “income rises” and “spending rises” with no link between them usually gain less.

4. (a) Total = 5 ÷ (1 − 0.8) [1] = 25 bn units [1]. [2] (b) 5 ÷ (1 − 0.5) = 10 bn units [1]. [1] (c) More of each extra unit leaks into saving, tax or imports [1], so less is passed on in each round and the rounds fade faster [1]. [2] Examiner insight: Part (c) gains credit when it names where the money goes instead; “people spend less” is a restatement of the data.

5. Consequence one: the national debt rises [1], so more is paid in interest and less is left for health or education [1]. Consequence two: demand is supported in a downturn because spending exceeds the money taken in taxes [1], although near full capacity it may only raise prices [1]. (Other valid pairs: a burden on future taxpayers who must meet the interest and repayment, with development.) [4] Examiner insight: Give two separate points and develop each; a consequence that is helpful, not only harmful, can be a good choice.

6. Consequence one: debt can be repaid [1], which reduces future interest payments [1]. Consequence two: taxing more than is spent takes money out of the circular flow [1], so demand and growth may fall, or services may be cut [1]. [4] Examiner insight: A good answer on a surplus gives a gain and a cost; saying only that it is “good” is thin.

7. (a) (134.5 − 130.0) ÷ 130.0 × 100 [1] = 3.46% [1]. [2] (b) A higher rate makes borrowing dearer and saving more rewarding [1]. Households borrow and spend less, and firms invest less [1]. Total demand falls [1], so demand-pull pressure on prices eases and inflation falls towards 2% (the gap is 1.46 percentage points) [1]. [4] Examiner insight: Reaching the target needs the full chain from the rate to spending to demand to prices; stopping at “spending falls” leaves the inflation link unmade.

8. (a) Before: 90,000 × 0.04 = 3,600; after: 90,000 × 0.055 = 4,950 [1]. Rise = 1,350 units a year [1]. [2] (b) Before: 12,000 × 0.02 = 240; after: 12,000 × 0.035 = 420 [1]. Rise = 180 units a year [1]. [2] (c) Interest on the loan rises from 9,000 to 11,250, a rise of 2,250 a year [1]. Some projects no longer give a profit after this cost, so the firm may delay or cancel investment [1]. [2] Examiner insight: Quote the figures you calculated in the explanation; a link to the number shows application of the context.

9. (a) Before: 40 × 1.50 = 60 fen [1]. After: 40 × 1.30 = 52 fen [1]. [2] (b) (52 − 60) ÷ 60 × 100 = −13.3%, so 13.3% cheaper [1]. [1] (c) Exports are cheaper abroad, so overseas demand for them tends to rise [1]. Imports become dearer, so imports tend to fall, which improves the current account, although the scale of the change depends on how far buyers react to price [1]. [2] Examiner insight: State the direction of each price and the resulting change in the current account; avoid saying the balance “improves” with no reason.

10. Fiscal: 8 ÷ (1 − 0.5) = 16 bn units of extra income [1]. Higher demand raises output and hires workers, which tackles unemployment and weak growth [1]. But spare capacity is only 10, so about 6 bn units of demand may raise prices instead [1], and inflation is below target, so this is acceptable and may even help [1]. It adds to the deficit and debt [1]. Monetary: a rate cut lowers borrowing costs, so consumption and investment rise [1], but it works slowly and may not help if firms and households are pessimistic [1]. Judgement: fiscal expansion fits better when confidence is low and inflation risk is small, provided the debt is sustainable, because it adds demand directly [1]. [8] Examiner insight: A judgement is more convincing when it uses the data given (the spare capacity and the low inflation), not general claims about fiscal policy.

11. Interest at 5%: before = 60 × 0.05 = 3.00 bn units; after repaying 3, debt = 57 and interest = 57 × 0.05 = 2.85, a saving of 0.15 bn units a year [1]. Less interest leaves more for services or tax cuts [1]. A surplus lowers the debt burden on future taxpayers [1] and builds room to borrow in a later recession [1]. But taxing more than is spent takes demand out of the economy [1], and if the surplus comes from spending cuts, services suffer [1]. The saving is small (0.15 on a 3 bn surplus), so the benefit is modest compared with the lost demand [1]. Judgement: a surplus suits an overheating economy with high debt, not a weak one with high unemployment [1]. [8] Examiner insight: Arguments for and against, then a judgement that depends on the state of the economy, usually answer an evaluate question better than a single-sided case.

Where marks are usually lost

• Confusing the budget deficit with the national debt.
• Giving a calculation result without the working or the word deficit or surplus.
• Describing what a policy does but not why it changes demand.
• Writing “spending falls” and stopping before reaching inflation or jobs.
• Treating a surplus as always good, or a deficit as always bad.
• Reversing the direction of an interest rate effect on borrowers and savers.
• Mixing up the exchange rate falling with exports becoming dearer.
• Evaluating without using the data in the question.

Next steps

• Check recall with the revision notes.
• Re-read the study guide.
• Go to the course hub and the checklist.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OxfordAQA International GCSE Economics (9214), specification version 1.0, for exams May/June 2025 onwards, published by OxfordAQA. Sections 3.2.3.1 and 3.2.3.2.