ECMF023, Principles of Macroconomics

TUTORIAL 4 : ROLE OF GOVERMENT

Name:
Marks:
Section :

1. Explain the three types of budget policies and identify the type of economic
conditions in which they may be implemented.
2. For each of the following statements, say whether you agree or disagree and
EXPLAIN your answer.
a. During periods of budget surplus (when G < T), the government debt
shrinks
b. During periods of budget deficit (when G > T), the government debt
shrinks
c. Governments will control the income disparity between the rich and poor
through taxation and payments
d. An indirect tax is paid by the person on whom it is levied and cannot be
passed on to another person
e. Open market operations consist of selling government securities by the
f.

central bank to influence the cash reserves in commercial banks

For the period of inflation, the central bank will increase the cash reserves

of commercial banks by selling securities

g. During unemployment, the central bank will selling securities and reduce
the cash reserves of commercial banks, and thus increase the money
supply in the economy
3.
4.
5.
6.

Discuss the sources of government revenue for Malaysia?

What are the objectives of government taxation?
Differentiate between direct and indirect taxes with examples.
Define proportional, regressive and progressive tax systems with the help of

diagrams.
7. Provide three internal and external sources of public debt.
8. Explain the objective of monetary policy
9. Briefly explain the instruments of monetary policy that can be used to reduce
inflation.
10.Differentiate between expansionary fiscal policy and contractionary fiscal
policy.
11. Define what an automatic fiscal policy is and describe how it will help solve
economic problems.
12.The following schedule shows the amount of tax paid by individuals in three
countries at dissimilar income levels.
1

ECMF023, Principles of Macroconomics

COUNTRY
S

RM22,500

RM29,250

RM27,000

NEW INCOME

RM33,750

RM36,000

RM40,500

ORIGINAL TAX

RM3,375

RM2,925

RM2,970

RM5,062.5

RM3,240

RM5,265

ORIGINAL
INCOME

PAID
NEW TAX PAID

a. Calculate the tax rate for countries S, T and U

b. Determine the tax structure implemented by every country
c. Draw the diagrams