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Economics (AS & A Level) · May / June 2021 · Paper 12 · Question 15

9708Methods and effects of government intervention in markets

The diagram shows the effect of the government introducing a subsidy on a product. What are the effects of the subsidy on government spending and consumer spending?

  1. Agovernment spending increases by US$240 million; consumer spending decreases by US$40 million
  2. Bgovernment spending increases by US$240 million; consumer spending decreases by US$200 million
  3. Cgovernment spending increases by US$480 million; consumer spending decreases by US$40 million
  4. Dgovernment spending increases by US$480 million; consumer spending decreases by US$200 million

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Correct answer: C. government spending increases by US$480 million; consumer spending decreases by US$40 million

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