Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 31, Problem 27P
Assume that the newly independent government of Tanzania employed you in 1964. Now free from British rule, the Tanzanian parliament has decided that it will spend 10 million shillings on schools, roads, and healthcare for the year. You estimate that the net taxes for the year are eight million shillings. The government will finance the difference by selling 10-year government bonds at 12% interest per year. Parliament must add the interest on outstanding bonds to government expenditure each year. Assume that Parliament places additional taxes to finance this increase in government expenditure so the gap between government spending is always two million. If the school, road, and healthcare budget are unchanged, compute the value of the accumulated debt in 10 years.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Assume that you are employed by the government of Tanzania in 1964, a new nation recently independent from Britain. The Tanzanian parliament has decided that it will spend 10 million shillings on schools, roads, and healthcare for the year. You estimate that the net taxes
for the year are eight million shillings. The difference will be financed by selling 10-year government bonds at 12% interest per year. The interest on outstanding bonds must be added to government expenditure each year. Assume that additional taxes are added to finance this
increase in government expenditure so the gap between government spending is always two million. If the school, road, and healthcare budget are unchanged, compute the value of the accumulated debt in 10 years.
Assume you are the Minister of Finance and Economic Planning for Ghana, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Ghana for the previous fiscal year, 2021. An examination of the data reveals that, during the fiscal year 2021, households in Ghana saved 20% of their disposable income (Yd) and spent the rest on consumption. In addition, GH¢5,000.00 was spent on Consumption expenditure (C), which is independent of income and Gross Private Investment (I) was GH¢7,000.00. Total Government expenditure (G) which stood at GH¢8,000.00 was supposed to be financed by a lump sum tax of GH¢2,000.00 (independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood at GH¢2,500.00. In addition, the country’s import (M) during the previous fiscal year comprises of GH¢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 Ghana…
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…
Chapter 31 Solutions
Principles of Economics 2e
Ch. 31 - In a country, private savings equals 600, the...Ch. 31 - Assume an economy has a budget surplus of 1,000,...Ch. 31 - In the late 1990s, the U.S. government moved from...Ch. 31 - Imagine an economy in which Ricardian equivalence...Ch. 31 - Why have many education experts recently placed an...Ch. 31 - What are some steps the government can take to...Ch. 31 - Based on the national saving and investment...Ch. 31 - How would you expect larger budget deficits to...Ch. 31 - Under what conditions will a larger budget deficit...Ch. 31 - What is the theory of Ricardian equivalence?
Ch. 31 - What does the concept of rationality have to do...Ch. 31 - What are some of the ways fiscal policy might...Ch. 31 - What are some fiscal policies for improving a...Ch. 31 - What are some fiscal policies for improving the...Ch. 31 - Explain how cuts in funding for programs such as...Ch. 31 - Assume there is no discretionary increase in...Ch. 31 - Explain how decreased domestic investments that...Ch. 31 - The U.S. government has shut down a number of...Ch. 31 - Explain how a shift from a government budget...Ch. 31 - Describe how a plan for reducing the government...Ch. 31 - Explain whether or not you agree with the premise...Ch. 31 - Explain why the government might prefer to provide...Ch. 31 - Under what condition would crowding out not...Ch. 31 - What must take place for the government to run...Ch. 31 - Sketch a diagram of how a budget deficit causes a...Ch. 31 - Sketch a diagram of how sustained budget deficits...Ch. 31 - Assume that the newly independent government of...Ch. 31 - Illustrate the concept of Ricardian equivalence...Ch. 31 - During the most recent recession, some economists...
Additional Business Textbook Solutions
Find more solutions based on key concepts
Define costvolumeprofit analysis.
Cost Accounting (15th Edition)
What are some of the problems with using the CPI?
Construction Accounting And Financial Management (4th Edition)
Ravenna Candles recently purchased candleholders for resale in its shops. Which of the following costs would be...
Financial Accounting (12th Edition) (What's New in Accounting)
E2-13 Identifying increases and decreases in accounts and normal balances
Learning Objective 2
Insert the mis...
Horngren's Accounting (11th Edition)
Using the information in PB6, determine the amount of revenue and expenses for Mateos Maple Syrup for the month...
Principles of Accounting Volume 1
Prepare a production cost report and journal entries (Learning Objectives 4 5) Vintage Accessories manufacture...
Managerial Accounting (5th Edition)
Knowledge Booster
Similar questions
- Suppose in our two-period model of the economy that the government, instead of borrowing in the current period, runs a government loan program. That is, loans are made to consumers at the market real interest rate r, with the aggregate quantity of loans made in the current period denoted by L. Government loans are financed by lump-sum taxes on consumers in the current period, and we assume that government spending is zero in the current and future periods. In the future period, when the government loans are repaid by consumers, the government rebates this amount as lump-sum transfers (negative taxes) to consumers. We use the same notation as in the lecture notes (y, y′ , c, c′ ,t, t′ , s, T, T′ ). Also, we use l ≡ L/n to represent the size of the loan that each individual consumer takes from the loan program, where n is the population. 1) Write down the government’s current-period budget constraint and its future-period budget constraint. 2) Determine the present-value budget…arrow_forwardin 2019 fiscal year estimated that Ghanaians saved 20 percent of their disposable income; however, due to overconsumption in the previous year, autonomous saving for 2019 was negative 100 million Ghana cedis. The government of Ghana imposed a lump sum tax of Gh ₡ 20 million. In addition to the lump sum tax the government also took 20 percent of all incomesearned in the economy in the form of proportional tax. The total government expenditure was GH ₡50 million in 2019. Total investment recorded for 2019 was 66 million. (A) Determine the tax function for this economy, derive the consumption function based on the above information and write out the aggregate demand equation (b) Determine the equilibrium consumption and calculate the value of the government expenditure multiplier for this economy and interpret your result (c) Calculate the total tax revenue to the governmentarrow_forwardOn Friday, 27 September, 2019, the Minister of Finance, Honourable Dr. Bwalya Ng’andu, MP, presented the 2020 National Budget to the National Assembly of Zambia. The theme of the budget is “Focusing national priorities towards stimulating the domestic economy”. In this budget the Minister highlighted among other things, some tax incentives and sources of revenue for the year 2020. Among the tax incentives, he proposed the suspension of import duty, for three years, on the importation of machinery for processing of solid waste to generate electricity and produce organic fertilizers as well as on selected aqua culture equipment. The Minister did not propose any changes to the Pay As You Earn (PAYE) tax which remains as follows: Annual Income (K) Tax Rate (%) First 39,600 0 39,6001 – 49,200 25 49, 201 – 74, 400 30 Above 74, 401 37.5 Briefly discuss the effect of the two tax incentives highlighted in the statement above Briefly explain the various…arrow_forward
- Public deficits arise whenever government expenditure exceeds government receipts. This phenomenon may result from various factors, such as an increase in government expenditure, a decrease in taxation, or a decline in receipts due to an economic slowdown. The accumulation of deficit leads to a rise in public debt. This is precisely what happened in many countries in the wake of 2007-2008 financial crises, when a combination of expensive bank bailouts, a decline in tax receipts due to recession, and an increase in government expenditure to fend off recession led to a record high deficit of 7.5 percent of GDP for the entire OECD area in 2010 and a record high public debt-to-GDP ratio of 94 percent in 2014. However, government budget deficits might be quite unsavory to the electorate. Thus, elected governments are sometimes tempted to “cook the books” and use “creative accounting” to present official deficit figures that seriously underestimate the real balance of government budgets.…arrow_forwardTrace the implications of a government budget surplus on the following: National saving Interest rates Private investment Economic growth Future living standards When tracing the effects of the budget surplus, list the assumptions you are making.arrow_forwardFor the last 50 years or so, republicans and democrats at the national level have each favored policies that have led to increased budget deficits, but the policies are different. Republicans have favored tax cuts, while democrats have favored increases in government spending. Perform TWO composition of output analyses, one that examines the impact of a tax cut and one that examines the impact of an increase in government spending. Then, write a sentence or two that describes how the impacts of the two are the same and how they are differentarrow_forward
- _________________ Are those expenditure of the government which neither cause any increase in the government asset or nor cause any reduction in the government liability.arrow_forwardIn South Africa state-owned enterprises (SOE) and labour unions are currently putting pressure on government to finance their activities and to increase wages for civil servants. Discuss how politicians, bureaucrats and interest groups can contribute to the growth of government expenditure in the economy.arrow_forwardBy how much did the disposable income of rich people increase as a result of the 2017 drop in the top marginal tax rate from 39.6 percent to 37 percent? Assume rich people have $2 trillion of gross income in the highest bracket.arrow_forward
- Assume the government of Spotifia will exist for only two periods, today and next year. The present value of government spending for the two periods equals $80 Today’s taxes add up to $10. The interest rate is 20%. The assets held by the country are $10. What must taxes be for Spotifia, in absolute value (not present value) next year? $60 $64 $68 $78 none of the abovearrow_forwardThe following transactions took place in Ecoland in 2018: Trillions of 2014 dollars Government purchases 400 Taxes 360 Firms’ profits 300 Investment 400 Consumption expenditure 1000 Wages paid to labor 1400 Exports 300 Government transfer payments 150 Imports 350 (a). Calculate Ecoland’s real GDP in 2018, i.e., GDP measured in 2014 $. (b) How much do households save in Ecoland? Is it enough to finance domestic investment? (c) Does the government have a balanced budget? If not, what is the surplus or deficit? (d) If Ecoland’s nominal GDP in 2018 is $1900 trillion, how much inflation has Ecoland experienced since 2014?arrow_forwardIt is a well-known fact that high-interest rates make loans more expensive. When interest rates are high, fewer people and businesses can afford to borrow. That lowers the amount of credit available to fund purchases, slowing consumer demand. At the same time, it encourages more people to save because they receive more on their savings rate. High-interest rates also reduce the capital available to expand businesses, strangling supply. This reduction in liquidity slows the economy and results in decrease in GDP. It is understood that the low-interest rates stimulate all types of real investments and thus economic growth. However, savings rates fall, when savers find they get less interest on their deposits, and thus they might decide to spend more. They might also put their money into slightly riskier but more profitable investments, which drives up stock prices. Based on this, it can be claimed that (especially high) interest rates are detrimental to economic growth as well as income…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax