Discuss the issue of deficit reduction.
The Government of India has been trying to reduce its deficit by
•Increase in taxes
•Reduction in its expenditure and
•Increase in its receipts through the sale of shares in Public Sector Units
However, these steps could result in deficit reduction, but the activities of government should be more efficient through proper planning of program along with better administration and implementation.
The alternative way of deficit reduction can be to change the scope of government by withdrawing it from some of the areas which were under its purview.
In discharging its fiscal responsibilities the government has to pursue prudent fiscal policy which is conducive to bring a high rate of economic growth in the economy.
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?