Analyse how the proposed changes in the fiscal policy of the Government in country X could affect BKC.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2018). The mark or mark type is shown in brackets.

1. [K] Definition of fiscal policy – government spending and taxation
2. [K] Higher income tax/direct tax – reduces disposable/discretionary incomes.
3. [K] Higher indirect/sales taxes will raise prices of goods sold in shops.
4. [K] Lower defence spending – cutting size of army.
5. [APP] L1 APP for reference to any change stated in case study if understood
6. [APP] Demand for clothing will be affected by lower disposable incomes/higher prices.
7. [APP] Demand for army uniforms will fall.
8. [APP] Reference to impact on factories in country X
9. [AN] YED for clothing may be positive so lower disposable incomes will reduce demand for BKC products.
10. [AN] Sales tax will increase costs to BKC therefore will supply less at any given price. As price increases there will be a contraction of demand. Thus, revenue will decrease.
11. [AN] Impact on demand from sales tax will depend on PED.
12. [AN] Lower demand for army uniforms will reduce revenue, making this BKC factory less profitable and it may face closure.