Cambridge International as and a level Economics Ebook

SELF-ASSESSMENT TASK 
5.3
Brazil aims to be the top spender on education
The Brazilian government is planning to increase its 
spending on education to 10% of its GDP by 2020, 
which would be a world record. It already spends a 
higher proportion, 5.7%, of its GDP on education than 
most other countries. Many economists, however, 
argue that Brazil is not getting value for money from its 
spending. A relatively high proportion of children who 
leave school without continuing on to higher education 
have low levels of literacy and numeracy. Teachers are 
relatively well-paid and many retire in their early 50s on 
generous pensions.
Read the feature below and answer the questions that follow.
1
Why is an increase in government spending on 
education defi ned as a supply side policy measure?
2
Analyse the eff ect on aggregate supply of increasing 
the age at which teachers retire.
Expenditure switching policy: 
policy measures designed 
to encourage people to switch from buying foreign-produced 
products to buying domestically produced products.
KEY TERM
Expenditure dampening or reducing policy: 
policy 
measures designed to reduce imports and increase exports 
by reducing demand.
KEY TERM
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Chapter 5: Government macro intervention 

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Scarcity and choice: 
Choice is an important key concept 
when deciding whether to select expenditure switching 
or expenditure dampening policies. If, for example, 
an economy is experiencing high unemployment it is 
more likely to select expenditure switching rather than 
expenditure dampening policies.
KEY CONCEPT LINK
Fiscal policy
If a country is experiencing a defi cit on the current 
account of its balance of payments, it may use a variety 
of fi scal policy measures. To reduce total expenditure, 
it could increase income tax and reduce government 
spending. A rise in income tax will reduce disposable 
income, leaving less income for household to spend on 
imports as well as domestically produced products. Lower 
government spending will directly reduce demand for 
goods and services which, as noted above, may reduce 
imports and put pressure on domestic fi rms to increase 
their exports.
As well as using fi scal policy as an expenditure 
dampening measure, it can also be used as an expenditure 
switching measure. To encourage domestic consumers 
and fi rms to switch to buying domestic products, a 
government may impose a tariff or increase an existing 
tariff on imports. Such a measure works more eff ectively 
when high quality, domestically produced substitutes are 
available.