A-level Economics A-level Economics Project—Project—

BUDGETBUDGETDEFICITDEFICIT

IntroductionIntroductionIt is in the time of liquidity trap, the in

terest rate is very low and the increase in money supply will have no effect on increasing national income. The way to increase national income is to carry out expansionary fiscal policy. When national income increase the government revenue will gradually increase.

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Liquidity

Trap

For the policies that proposed by our new Financial Secretary, Mr Tong Ying-lin, he will use 2 methods to reduce the budget deficit.

1. reducing expenditure 2. raising revenue

Reducing ExpenditureReducing Expenditure A. Cutting operating expenditure

- by restructuring the government department to increase its productivity

- can reduce government expenditure

Agree!

B. Cut the size of civil servant -privatization -will not harm the morale of civil serv

ants-can reduce operating expenses

Agree!

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C. Cut the pay of civil servant -will harm the morale of civil servant

s -reduce the income of citizen affect t

he aggregated demand and will reduce national income

Disagree!

D. Keep the amount of social welfare as before

-don’t affect the income of citizens and also the aggregated demand and national income

Agree!

Raising RevenueRaising Revenue A. Increase salaries tax- reduce the disposal income of citize

n affect the aggregated demand and will reduce national income

Disagree!

B. Increase profit tax-affect the incentive to invest

Disagree!

C. Increase motor vehicles first registration tax

-can reduce the number of cars on the road

-reduce the problem of pollution

Agree!

D. Increase air passenger departure tax

-demand for departure through airline is inelastic

Agree!

E. Increase betting duty-a kind of luxury, not affect all people-can reduce the betting incentive of p

eople

Agree!

F. Football betting duty -a kind of luxury, not affect all people-can reduce the betting incentive of p

eople

Agree!

G. Issuing bonds-reduce the money supply, interest ra

te increase and investment decrease

-contraction effect

Disagree!

H. Selling or privatization of government assets

-reduce the size of government -reduce the size of civil servants-wealth of government

Agree!

I. Boarder tax and sale tax - affect all citizens -reduce people disposal income of ci

tizen affect the aggregated demand and will reduce national income

Disagree!

J. Increase fee and charge-can raise government revenue-will not affect all citizens

Agree!

Our Proposal

1. Increase infrastructures- Increase employment and the nati

onal income will increase

2. Increase retaining -reduce the structural unemployment

and fiction unemployment

3. Restructure government department (e.g. 破產審計處 )

- increase its productivity