Distinguish between revenue expenditure and capital expenditure.
Revenue expenditure is the expenditure which is financed out of revenue receipts.
Capital expenditure is the expenditure which is financed out of borrowings from public and foreign governments.
It is such expenditures of government which does not result in creation of an asset or in reduction of any liability.
This expenditure of government results in creation of assets or reduction in liabilities.
It is short period expenditure.
It is generally long period expenditure.
It is recurring in nature.
It is non-recurring in nature.
The examples of revenue expenditure are expenditure on interest, pension, salary, etc.
The example of capital expenditures are expenditure on roads, bridges, Metro project, etc.
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?