Question
Assume you are the Minister of Finance and Economic Planning for the Economy of Makidingo, in charge of Fiscal Policy. The Research Director of the
Assume you are the Minister of Finance and Economic Planning for the Economy of Makidingo, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Makidingo for the previous fiscal year, 2021. An examination of the data reveals that, during the fiscal year 2021, households in Makidingo saved 10% of their disposable income (Yd) and spent the rest on consumption. In addition, US$1,250.00 was spent on consumption expenditure (C), which is independent of income and Gross Private Investment (I) was US$925.00. Total Government expenditure (G) which stood at GH6,000.00 was supposed to be financed by a lump sum tax of US$1,500.00 and a proportional tax rate of 20% of national income. Exports (X) stood at US$1,500.00. In addition, the country's import (M) during the previous fiscal year stood at US$550.00 which was independent of the country's national income and 15% which was dependent on the country's national income. Given these data on Economy of Makidingo for the previous year:
i. Compute the equilibrium level of income (Y), Consumption (C), Tax (T) and Savings (S). (Hint: = +; = + and =+)
ii. Determine the Government fiscal stance.
iii. If the full employment level of national income is GH20750.00, determine the income gap.
iv. What fiscal policy would be appropriate to address this gap?
v. By how much should government expenditure change to achieve it?
vi. Determine the trade balance and comment on your answer.
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