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 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 GH¢40,000.00, determine the income gap.
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 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 GH¢40,000.00, determine the income gap.
iv. What fiscal policy would be appropriate to address this gap?
v. If there is an increase in export to GH¢4,000.00, find the new level of equilibrium income.
vi. Show how a GH¢2,000 increase in government spending financed by a GH¢2,000 increase in taxes will affect the level of national income.
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