Explain why public goods must be provided by the government.
Public goods are the goods like roads, parks, police services, defence services, Railway, etc. These goods are collectively consumed by one and all people in the society. These Goods are produced and provided with welfare motive, which is the main objective of Government production.
So the public goods must be provided by the government due to following reasons –
•The benefits of public goods can be easily enjoyed by everyone.
•The consumption by one individual should not affect the consumption of another individual.
Therefore, providing public goods is responsibility of government due to non-rivalry and non-excludable reasons.
Suppose that for a particular economy, investment is equal to 200, government purchases are 150, net taxes (that is lump-sum taxes minus transfers) is 100 and consumption is given by C = 100 + 0.75Y (a) What is the level of equilibrium income? (b) Calculate the value of the government expenditure multiplier and the tax multiplier. (c) If government expenditure increases by 200, find the change in equilibrium income.
Consider an economy described by the following functions: C = 20 + 0.80Y, I = 30, G = 50, TR = 100 (a) Find the equilibrium level of income and the autonomous expenditure multiplier in the model. (b) If government expenditure increases by 30, what is the impact on equilibrium income? (c) If a lump-sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?