May/June 2026 Paper 33

2026 · 30 questions · 30 parts · 30 marks

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23Fiscal PolicyHard1 mark
The diagram shows an economy’s production possibility curve (PPC).
a production possibility curve (PPC) for an economy, concave to the origin, with output of capital goods on the vertical axis and output of consumer goods on the horizontal axis. Two points are plotted inside the curve, below full capacity: X, and Y just to its right at a slightly higher output of consumer goods.
The government decreases income tax with the aim to increase employment without causing inflationary pressure in the economy. When is this policy likely to be most effective?
marginal propensity to consumeposition of the economy on the PPC diagram
A0.6X
B0.6Y
C0.8X
D0.8Y