In the article by Julie Doyle, it was revealed that the government would withdraw funding to the higher education sector. As a result, university fees are expected to increase, and the income threshold to repay HECs debt has been lowered. The article states that these changes are expected to “save [the government] $2.8 billion over four years.” The key reason for this was to reduce the government budget deficits that accumulated as a result of the Global Financial Crisis. In answering the following questions, use the equation BD = G – T and T = tY where t = tax rate. 

What will happen to AD and total income if G is reduced, ceteris paribus?

 A.  They will fall

 B.  They will rise

 C.  They will stay the same

If tax rates stay the same, what will happen to total tax revenue?

 A.  It will rise

 B.  It will stay the same

 C.  It will fall

The effect on the budget deficit is as follows:

 A.  It will definitely worsen

 B.  It will definitely improve

 C.  It is unclear whether it will worsen or improve