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Instruction: It's official: Budget increases will not tax recovery,

Read the passage and study the table. Then answer the questions that follow:

It's now official. The tax increases of last year's two Budgets will not stall

Britain's economic recovery.

The Treasury's summer economic forecast revised up the prediction of UK

economic growth this year to 2.75 percent from 2.5 percent at the time of last

November's Budget.

Although the forecast says growth of consumer spending may slow a little in the

short term as a result of tax increases, this is not expected to be reflected in gross

domestic product. The Treasury expects the personal savings sector ratio, which fell last

year to 11.5 percent from 12.25 percent in 1992, will fall further this year to less than 1 0

percent. This, and a quickening of disposable income growth to 2.5 percent next year

from 1 percent in 1994, should enable consumers' expenditure to increase by 3 percent

both this year and next.

IMG_2546.jpgGross domestic product and its components 

IMG_2545.jpg

Image transcriptions

Gross domestic product and its component (Ebn 1990 prices, seasonally adjusted) Consu General Total Stock Domestic Export Total final Less Less Plus GPD mer government fixed building demand of expenditure | imports adjustment statistical COST consumption investment goods of to factor discrepancy expend FACTO & cost iture services goods R services & services 1993 348.5 116.4 95.3 0.3 560.5 140.3 700.8 153.3 71.8 474.9 1994 359.3 188.1 99.2 0.6 577.2 148.9 726.1 162.2 74.5 -1.0 488.4 1995 370.1 118.6 103.2 1.6 593.6 157.2 750.8 170.9 76.9 -1.0 501.9 1993 7 st 172.5 57.9 47.4 0.4 278.1 69.3 347.4 75.7 35.7 -0.4 235.6 half 176.0 58.5 47.9 0.0 282.4 71.0 353.4 77.6 36.1 -0.5 239.3 half 1994 7 st 178.5 58.9 49.4 -0.3 286.5 73.5 360.0 79.9 36.9 -0.5 242.7 half and 180.8 59.2 49.8 0.9 290.7 74.5 366.1 82.3 36.7 0.5 245.7 half

1993 2 1/2 1/4 1/4 1/2 3 2 1/4 2 3/4 2 1/4 0 1994 0 3 6 32/2 53/4 3 3/4 1995 1/2 1/4 23/4 5 1/2 3 1/2 5 1/4 3 1/4 0 What does 'GDP at 1990 prices' mean? What is the term used for GDP before adjustments for factor cost are made? What adjustments have to be made to convert the figures to factor cost? Why are the factor cost adjustments in the table all negative? What further adjustments would be required to obtain a figure for national income? Explain using Keynesian analysis, how tax increases could stall economic recovery. Why was it predicted that tax changes would not cause a reduction in consumer spending? Give two (2) other ways in which GDP might be measured.

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