R01 Role of Government: tax, economy and benefits: free practice questions

1. Question 1 of 5

   What is the primary aim of taxation?

   Option A: To redistribute wealth from the better-off to the less well-offOption B: To encourage people to save into pensionsOption C: To raise revenue for the GovernmentOption D: To control the rate of inflation

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   The answer is C: To raise revenue for the Government

   The primary aim is to raise revenue. Redistributing wealth is a secondary aim that depends on the governing party's policies, and tax concessions can be used to encourage saving.

   Why the other options are wrong

   A

   Redistribution is a secondary aim, not the primary one.

   B

   Tax concessions encourage saving, but that isn't the main purpose of taxation.

   D

   Inflation is mainly targeted through interest rates set by the MPC.

2. Question 2 of 5

   Which of these is an example of monetary policy rather than fiscal policy?

   Option A: Changing interest ratesOption B: Increasing Government spending on infrastructureOption C: Raising the rate of VATOption D: Increasing Government borrowing

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   The answer is A: Changing interest rates

   Monetary policy covers interest rates and the money supply. Fiscal policy covers taxation, Government spending and borrowing.

   Why the other options are wrong

   B

   Government spending is part of fiscal policy.

   C

   VAT is a tax, so changing it is fiscal policy.

   D

   Government borrowing is part of fiscal policy.

3. Question 3 of 5

   When must the Bank of England write to the Chancellor about inflation?

   Option A: Only when inflation turns negative and prices start to fallOption B: When inflation is more than one point away from the 2% targetOption C: Every month, whatever the rate of inflation happens to beOption D: Whenever the MPC decides to change the Bank Rate

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   The answer is B: When inflation is more than one point away from the 2% target

   There is a tolerance of one percentage point either side of the 2% CPI target. If inflation falls outside it, the Bank writes to the Chancellor to explain, and these letters are published.

   Why the other options are wrong

   A

   A letter is needed whenever inflation is more than one point away from 2%, above or below.

   C

   Letters are needed only when the tolerance is breached.

   D

   Rate changes don't in themselves trigger a letter.

4. Question 4 of 5

   What is the general effect on the economy when the Government borrows money by issuing gilts?

   Option A: It automatically raises the Bank of England's base rateOption B: It increases the money in circulation and stimulates the economyOption C: It has no effect, as the money is spent again immediatelyOption D: It reduces the money in circulation and can have a dampening effect

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   The answer is D: It reduces the money in circulation and can have a dampening effect

   Borrowing takes money out of circulation, which can dampen the economy. When the Government repays the loan, money goes back into circulation and can stimulate activity.

   Why the other options are wrong

   A

   Interest rates are set independently by the MPC; borrowing doesn't change them automatically.

   B

   It's repaying borrowing that injects money and stimulates the economy.

   C

   The text describes borrowing as having a dampening effect, not none.

5. Question 5 of 5

   Under the new State Pension, how many qualifying years of National Insurance are needed for the minimum and the full amount?

   Option A: Minimum 10 years; full amount 30 yearsOption B: Minimum 5 years; full amount 30 yearsOption C: Minimum 10 years; full amount 35 yearsOption D: Minimum 15 years; full amount 40 years

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   The answer is C: Minimum 10 years; full amount 35 years

   The new State Pension, from April 2016, needs at least 10 qualifying years for any pension and 35 years for the full amount (up from 30).

   Why the other options are wrong

   A

   The full amount now needs 35 years, up from 30.

   B

   The minimum is 10 years and the full amount needs 35.

   D

   The minimum is 10 years and the full amount needs 35.

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