Explain why the tax multiplier is smaller in absolute value than the government expenditure multiplier.
The tax multiplier is smaller in absolute value than the government expenditure multiplier, as the government expenditure affects the total expenditure and taxes through the multiplier. Tax multiplier also influences disposable income that affects the overall consumption level.
The reason is explained through the following example.
Let’s assume MPC be to 0.80.
Then, the government expenditure multiplier
Tax multiplier
= - 4
This shows that government expenditure multiplier is more than tax multiplier.
Differentiate between devaluation and depreciation.
What is a barter system? What are its drawbacks?
Write down some of the limitations of using GDP as an index of welfare of a country.
Explain the relation between government deficit and government debt.
From the following data, calculate Personal Income and Personal Disposable Income.
Rs (crore)
(a) Net Domestic Product at factor cost 8,000
(b) Net Factor Income from abroad 200
(c) Undisbursed Profit 1,000
(d) Corporate Tax 500
(e) Interest Received by Households 1,500
(f) Interest Paid by Households 1,200
(g) Transfer Income 300
(h) Personal Tax 500
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Give the relationship between the revenue deficit and the fiscal deficit.
Discuss the issue of deficit reduction.
Are fiscal deficits inflationary?
What is the difference between ex ante investment and ex post investment?
Suppose C = 100 + 0.75Y D, I = 500, G = 750, taxes are 20 per cent of income, X = 150, M = 100 + 0.2Y . Calculate equilibrium income, the budget deficit or surplus and the trade deficit or surplus.
Does public debt impose a burden? Explain.
Are the concepts of demand for domestic goods and domestic demand for goods the same?
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Define budget deficit and trade deficit. The excess of private investment over saving of a country in a particular year was Rs 2,000 crores. The amount of budget deficit was ( – ) Rs 1,500 crores. What was the volume of trade deficit of that country?
Differentiate between balance of trade and current account balance.
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Write down some of the limitations of using GDP as an index of welfare of a country.
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Suppose marginal propensity to consume is 0.75 and there is a 20 per cent proportional income tax. Find the change in equilibrium income for the following (a) Government purchases increase by 20 (b) Transfers decrease by 20.