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The government expenditure would have an effect on the economy since it is part of the
computation for the GDP. Government expenditure may improve the situation of the country
since it increases economic growth and decreases unemployment, if government spending would
not be mismanaged.
6. a.) A budget deficit occurs when government spending exceeds income derived from tax. This
mismanagement. Tax rates need not always be increased in order to increase revenue as most of
the time, especially for the Philippines, the problem lies in the collection process. Tax evasion
has been frequently occurring, and this may be avoided by computerization of the process, or
increasing the penalty of those who fail to pay or incorrectly pay the amount of tax. The Bureau
of Internal Revenue must also consider increasing the percentage of income tax returns they
b.) High unemployment rate can be offset by increasing government spending. The
producing competent and skilled workers. These are the type of workers the firms would need
and would pay for. In other words, funding education by providing more scholarships,
sponsoring books and other school materials, and hiring more teachers are all essential to avoid a
high unemployment rate in the long run. Low interest rates may also help as businesses incur
less borrowing costs, thus, allocating more capital for hiring workers. Lowering the minimum
wage, or wages in general, may also attract investors to consider maximizing a labor extensive
c.) Investment may flourish by lowering interest rates as discussed in detail in the third
question. Fiscal incentives such as duty free importation and tax holidays may be offered for
investors to note that capital is cheap in the country, which would hopefully increase their
investment. Lower wages may also be beneficial in a way that utilizing the labor force will be
d.) Preventing excessive volatility is a function of the government. Thus, when high demand for
dollars, such as depreciation, is present, the government is quick to remedy this by supplying the
necessary amount of dollars held as reserve for this kind of situation. Lessening tariffs or
import duties may also prove useful as this increases imports, to be combated with the rise in
e.) Growth is measured by observing the Gross Domestic Product (GDP) or Gross National
Income (GNP). Applying the final expenditure approach, sustainable or high growth may be
Investment may be increased by lowering interest rates, offering fiscal incentives, and lowering
wages. Government spending may be increased by increasing the national budget, alongside the
efficiency of revenue collection. Lastly, imports may be decreased through appreciation, or the
f.) Lowering interest rates often result to high demand, compared to current supply, and this is
believed by some economists to be the cause of inflation. Bangko Sentral ng Pilipinas may