Assuming you are the Minister of Finance and Economic Planning for Nigeria, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Nigeria’s for the previous fiscal year, 2021. An examination of the data reveals that, during the fiscal year 2021, households in Nigeria saved 20% of their disposable income (Yd) and spent the rest on consumption. In addition, ₦5,000.00 was spent on Consumption expenditure (C), which is independent of income and Gross Private Investment (I) was ₦ 7,000.00. Total Government expenditure (G) which stood at ₦8,000.00 was supposed to be financed by a lump sum tax of ₦2,000.00 (independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood at ₦2,500.00. In addition, the country’s import (M) during the previous fiscal year comprises of ₦1,000.00 which was independent of the country’s national income and 10% which was dependent of the country’s national income. Given these data on Nigeria for the previous year: i. Compute the equilibrium level of income (Y), Consumption (C), Tax (T) and Savings (S). (Hint: ? = ? + ??? ; ? = ?? + ?? and ? = ?? + ??) ii. If the full employment level of national income is ₦ 40,000.00, determine the income gap. iii. If there is an increase in export to ₦4,000.00, find the new level of equilibrium income. iv. Show how a ₦2,000 increase in government spending financed by a ₦2,000 increase in taxes will affect the level of national income

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter9: The Keynesian Model In Action

Section: Chapter Questions

Problem 18SQ

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Assuming you are the Minister of Finance and Economic Planning for Nigeria, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Nigeria’s for the previous fiscal year, 2021. An examination of the data reveals that, during the fiscal year 2021, households in Nigeria saved 20% of their disposable income (Yd) and spent the rest on consumption. In addition, ₦5,000.00 was spent on Consumption expenditure (C), which is independent of income and Gross Private Investment (I) was ₦ 7,000.00. Total Government expenditure (G) which stood at ₦8,000.00 was supposed to be financed by a lump sum tax of ₦2,000.00 (independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood at ₦2,500.00. In addition, the country’s import (M) during the previous fiscal year comprises of ₦1,000.00 which was independent of the country’s national income and 10% which was dependent of the country’s national income. Given these data on Nigeria for the previous year: i. Compute the equilibrium level of income (Y), Consumption (C), Tax (T) and Savings (S). (Hint: ? = ? + ??? ; ? = ?? + ?? and ? = ?? + ??) ii. If the full employment level of national income is ₦ 40,000.00, determine the income gap. iii. If there is an increase in export to ₦4,000.00, find the new level of equilibrium income. iv. Show how a ₦2,000 increase in government spending financed by a ₦2,000 increase in taxes will affect the level of national income.

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