The country is currently in recession and this has led to lower tax revenue (because of more unemployment and less business profits) and higher spending (on welfare benefits). The result is a large deficit. The government decides to raise tax rates and lower government expenditure.

Is the government's decision a good idea?

Identify three important economic concepts from the list below you would use in answering this question and explain why they are important in this context.

1. Social Equity

2. Inflation

3. Consumption

4. Scarcity

5. Investment