JIMMA UNIVERSITY COLLEGE OF AGRICULTURE AND VETERINARY

MEDICINE
DEPARTMENT OF AGRICULTURAL ECONOMICS
COURSE : MACROECONOMICS –I GROUP ASSIGNMENT

GROUP 1

STUDENT NAME : ID NO.

1. ABDI FIKEDU…………………………………………………………………………………
2. BESHADA SHITILA………………………………………………………………………..
3. DEMBELI DIBISA……………………………………………………………………………..
4. ELIAS AYANA………………………………………………………………………………
5. HAMDI SIRAJ………………………………………………………………………………..RU1296/12
6. KEBEDE SORSA………………………………………………………………………………..

1.Discuss what the roles and objectives of fiscal policy should be in an underdeveloped or developing
economy like Ethiopia`s. Prepare the reporton the outcome of your group assignment.

2.exlpain the impact of an increase in the money supply in the short run and in the long run.

3.describe the difference between frictional and structural unemployment

1.Discuss what the roles and objectives of fiscal policy should be in an underdeveloped or developing
economy like Ethiopia`s. Prepare the reporton the outcome of your group assignment.

Fiscal policy plays an increasingly important role in many developing countries.

Decisions on fiscal policy, especially if properly synchronised with monetary policy, can help
smoothen business cycles, ensure adequate public investment and redistribute incomes.

The four main components of fiscal policy are

(i) expenditure, budget reform

(ii) revenue (particularly tax revenue) mobilization,
(iii) deficit containment/ financing and
(iv) determining fiscal transfers from higher to lower levels of government.

Fiscal policy works through both aggregate demand and aggregate supply channels. Changes in
total taxes and public expenditure affect the level of aggregate demand in the economy,
whereas, the structure of taxation and public expenditure affect, among others, the incentives
to save and invest (at home and abroad), take risks, and export and import goods and services.

The pressures for high and growing government expenditure in developing countries are
manifold.Because of their low per-capita incomes and high incidence of poverty, developing
countries face an urgency to have high rates of economics growth.This places a strong
burden on policy to ensure rapid economic growth whereas, at the same time, the limited
efficacy of policy instruments and governance inadequacies imply that the effective scope
for policy is constrained.This mismatch between expectations from and actual effectiveness
of policy is particularly acute in developing countries, as compared to developed countries.
In the former with the perpetual weakness of institutions to mobilize and direct savings, the
role of the state is crucial in harnessing resources for development. With weak regulatory
apparatus and imperfect market signals, the state plays an important, even dominant, role
in allocating investment funds and in anti-poverty programs as well as in their design.
Pressures for populism through price controls and the like are considerable.

Concurrently, and for some of the same reasons, states in many developing countries are handicapped
in their ability to play an activist role. In most such countries the state is a rather weak political entity
than compared to most developed countries. As Heady (2004) notes most developing countries are also
beset with lack of consensus on what constitutes a sound fiscal policy. Further, resources available with
the government are meagre, since tax bases are small, tax administration weak and tax evasion
rampant.

2.Explain the impact of an increase in the money supply in the short run and in the long run.

Money supply is the total amount of cash, coin