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Short questions


Question 1

With reference to public expenditure and using suitable examles, distinguish between current, capital and transfer expenditure.

Question 2

A government can fund public spending through taxation and/or borrowing. Discuss the possible consequences of its decisions.

Question 3

When a government's budget deficit increases, this may lead to a worsening of the trade deficit. Explain why this might be the case.

Question 4

Explain two reasons why there may need to be controls on the growth of government spending.

Question 5

Explain why some economists consider crowding out to be important.

Question 6

Define the terms 'national income multiplier' and 'investment accelerator'.

Question 7

In a closed economy with no government sector, an increase in injections of $100 million causes the equilibrium level of national income to rise by $500 million. Calculate the marginal propensity to consume.

Question 8

An open economy with a government sector is in equilibrium. Assume the following:

  • Marginal propensity to save = 0.4
  • Marginal propensity to tax = 0.2
  • Marginal propensity to import = 0.2

Showing your method of working, calculate:

(a) the value of the multiplier
(b) by how much the equilibrium level of national income would fall, if injections in the economy are reduced by $60m.

Question 9

Explain why increasing government expenditure is likely to have a larger multiplier effect than an equivalent reduction in taxation.

Question 10

Government expenditure represents one of the injections of expenditure. Explain how an increase in government spending may have a multiplier effect on the economy.