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Jazzer P.

Reyes

FMGT 4A

ASSIGNMENT

Research the following:


1. Problems with Fiscal Policy.
ANSWER: Budget Deficit The National Government (NG) incurred a P121.7 billion deficit for 2015,
66% or P48.6 billion higher than the budget deficit recorded in 2014 as expenditure growth
outperformed revenue collections. Relative to the economy, the deficit came in at 0.9% of GDP, well
below the 2% target; Inefficiency in Budget Allocation, Tax Collection, Pork Barrel
2. Investment Policies affecting Expectations:
ANSWER:
ROSY SCENARIO POLICY
The rosy scenario is that in a highly connected, internet-intensive world, the bad news travels far
more quickly and far more convincingly than before. The early stages of the downturn are like
falling off a cliff. We bottomed out maybe two weeks ago. That said, the rebound also comes much
more quickly. Wages are more flexible than before. Bad inventory policies are avoided through
information technology. The Fed responds to changing conditions ever more quickly. Overall,
economic time accelerates on both the downswing and the upswing.
EXPORT-LED GROWTH POLICIES
Export-led growth is an economic strategy used by some developing countries. This strategy seeks
to find a niche in the world economy for a certain type of export. Industries producing this export
may receive governmental subsidies and better access to the local markets. By implementing this
strategy, countries hope to gain enough hard currency to import commodities manufactured more
cheaply somewhere else.
EXCHANGE RATE POLICIES
An exchange-rate regime is the way an authority manages its currency in relation to other
currencies and the foreign exchange market. It is closely related to monetary policy and the two are
generally dependent on many of the same factors.
The basic types are a floating exchange rate, where the market dictates movements in the
exchange rate; a pegged float, where a central bank keeps the rate from deviating too far from a
target band or value; and a fixed exchange rate, which ties the currency to another currency, mostly
reserve currencies such as the U.S. dollar or the euro or a basket of currencies.
COUNTER CYCLICAL POLICY
Counter cyclical policy is an economic or financial policy is called countercyclical if it works against
the cyclical tendencies in the economy. That is, countercyclical policies are ones that cool down the
economy when it is in an upswing, and stimulate the economy when it is in a downturn.

3. Alternatives of Fiscal Policy

Government Purchases: These are the expenditures by the government sector, especially
the federal government, on final goods and services. They are the portion of gross domestic
product purchased by the government sector. Any change in government purchases, as
such, directly affects aggregate expenditures and thus the macro economy.

Taxes: These are involuntary payments from the household sector to the government
sector. Taxes are the primary source of revenue used by government to finance government
spending. Taxes affect the amount of disposable income available for consumption and
saving. As such, any change in taxes indirectly affects aggregate expenditures and the
macro economy through consumption expenditures and investment expenditures.

Transfer Payments: These are gifts made to the household sector. Unlike government
purchases, these payments are not made in exchange for goods and services. Because
these are financed with taxes, transfer payments are, in effect, the transfer of income from
one person to another. Because transfer payments also affect the amount of disposable
income available, any change in transfer payments also as an indirect effect on aggregate
expenditures.

Although the government sector can and does make use of all three fiscal policy tools, it's often
convenient to consolidate taxes and transfer payments into a single tool net taxes. Net taxes are
the difference between taxes and transfer payments. Individually, taxes and transfer payments
represent similar, but opposite flows between the between the household and government sectors.
Taxes reduce disposable income and transfer payments increase disposable income. When
combined, net taxes are then the net flow between the household and government sectors; and
thus capture the net impact on disposable income.
5. Policies that could be used to influence income
Incomes and equity policies
A second consideration in setting taxes, however, relates to the distribution of income and wealth.
Taxing the rich and stripping them of some of their assets to meet the needs of the poor of this
generation, or to invest for the benefit of poor people in the future, can obviously be one way of
attaining the goal of sustainable development. Unfortunately, it is seldom politically feasible on any
substantial scale! However, where wealth or income comes from economic rents that result from
public investments, such as increased value or productivity of land due to public infrastructure
construction, it may be more acceptable to tax away at least a part of those gains.
Policies can also be adopted that specifically target the poor, such as famine relief programs, food
for work schemes, or provision of free or subsidized services. Most industrialized countries have
extensive social welfare programs in place to help the disadvantaged, such as the sick, the old or
the unemployed. Because such programs are very expensive, in most less developed countries
they are of much more limited scope, or are even totally absent.
The argument for policies designed to achieve a more equitable distribution of income is not that
the poor cause more resource degradation than the rich, and so must be helped out of their poverty.
Indeed, the contrary is often the case, given the much higher levels of consumption of items such
as fossil fuels in rich countries. Rather the aim is to make possible a reasonable standard of living
for today's poor. Then they can have the means to provide a more sustainable future for their
children, for example by providing them with good nutrition, sound health care and a good
education.