This set has eleven original questions, from easier to harder, covering all five lessons in public finance and economic instruments. Questions 1 and 2 practise budgets, 3 to 6 taxes, 7 and 8 interest rates, 9 and 10 fiscal effects, and 11 neutral writing.
All economies, people and figures are invented, and none of the questions copies an exam paper. Write each answer on paper first, then open the solution. Note the ones you missed and use the routing list at the end. The mistake log and retest queue helps you retry a fresh question later.
Questions
1. The fictional economy of Tarn has revenue of MD 100 million (income tax 55, sales tax 30, other 15) and spending of MD 95 million. State the balance and show it as a percentage of revenue.
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Revenue check: 55 + 30 + 15 = 100. Balance = 100 − 95 = 5, a surplus of MD 5 million. As a share of revenue: 5 ÷ 100 × 100 = 5%.
2. In a budget with total spending of MD 120 million, education receives MD 24 million. What share of spending is education?
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24 ÷ 120 × 100 = 20% of spending.
3. Classify each as a direct or indirect tax: (a) tax on wages, (b) tax on each litre of petrol, (c) tax on a company’s profit.
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(a) Direct, charged on income. (b) Indirect, charged on a purchase. (c) Direct, charged on profit.
4. A scooter has a shelf price of MD 250 before an 8% sales tax. Find the tax and the price the buyer pays.
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Tax = 250 × 8% = MD 20. Price paid = 250 + 20 = MD 270.
5. Farid earns MD 4,500 a month and pays a flat 12% income tax. How much does he pay and how much does he keep?
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Tax = 4,500 × 12% = MD 540. He keeps 4,500 − 540 = MD 3,960.
6. Gita earns MD 2,000 and pays MD 100 income tax. Hui earns MD 5,000 and pays MD 500. Name the type of tax by its rate pattern.
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Gita pays 100 ÷ 2,000 = 5%. Hui pays 500 ÷ 5,000 = 10%. The percentage rises with income, so the tax is progressive.
7. A firm borrows MD 150,000. The loan rate falls from 8% to 6%. Calculate the yearly interest before and after, and the saving.
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Before: 150,000 × 8% = MD 12,000. After: 150,000 × 6% = MD 9,000. Saving = 12,000 − 9,000 = MD 3,000 a year.
8. The central bank of Tarn raises its rate from 4% to 6%. Write a chain of at least four linked steps showing a possible effect on total demand, and state one assumption.
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A higher central bank rate leads banks to raise loan rates, so borrowing becomes dearer. Firms may cut investment and households may cut borrowing, so spending falls, and total demand may fall. Saving also becomes more rewarding, which may reduce consumption further. Assumption: banks pass the rise on and households and firms respond to the higher cost.
9. Marlow has revenue of MD 100 million and spending of MD 110 million. Spending rises by MD 15 million. (a) Find the new deficit if revenue is unchanged. (b) Find it if the extra spending raises tax revenue by MD 3 million.
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(a) New spending = 125. Deficit = 125 − 100 = MD 25 million. (b) New revenue = 103. Deficit = 125 − 103 = MD 22 million.
10. Taxable income is MD 300 million. The tax rate falls from 30% to 25%. (a) Find the fall in revenue with income unchanged. (b) Households spend 60% of the extra income. How much extra spending is that, and how much is saved?
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(a) Before: 300 × 30% = 90. After: 300 × 25% = 75. Fall = MD 15 million. (b) Extra spending = 15 × 60% = MD 9 million. Saved = 15 − 9 = MD 6 million.
11. Rewrite this sentence so that it explains a mechanism instead of giving a verdict: “A tax on sugary drinks is plainly the right policy.”
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A sample: “A tax on sugary drinks raises their price, so quantity demanded may fall if buyers respond to price. It also raises revenue for the government. The outcome depends on how strongly buyers respond and on whether they switch to other products.” The rewrite states a mechanism, an assumption and a deciding factor, and takes no side.
If you got these wrong
- Questions 1 and 2, wrong balance or share: reread reading a fictional budget, and check the base with the percentage-base explorer.
- Questions 3 to 6, wrong label or amount: go to distinguishing a direct from an indirect tax and test the rule “what is taxed?”.
- Questions 7 and 8, broken chain: revisit tracing a modelled interest-rate change and write one reason at every link.
- Questions 9 and 10, missing assumptions: study explaining possible fiscal effects and assumptions, and compare shares with ratios with interpretation limits.
- Question 11, opinion in the answer: read presenting policy mechanisms without advocating.
If a pattern keeps returning, bring your written working to a teacher in online one-to-one Economics tuition.