3) Greece, Ireland, Portugal, and Spain all went through national budget difficu
ID: 1142162 • Letter: 3
Question
3) Greece, Ireland, Portugal, and Spain all went through national budget difficulties in recent years. Use the data below to answer questions regarding the sovereign debts of these nationals (All data comes from the OECD and is in billions of current US dollars.).
2000 2010
Debt GDP Debt GDP
Greece $138 $127 $488 $308
Ireland $34 $98 $104 $206
Portugal $62 $118 $190 $231
Spain $292 $586 $700 $1,420
a. Compute the debt-to-GDP ratio for all four nations in both 2000 and 2010.
b. Compute the average yearly budget deficit for each of the nations over this period.
c. In your judgment, which of the four nations was in the worse fiscal shape in 2010? Use your computations from above to justify your answer.
4) Explain the differences between typical demand side fiscal policy and supply side fiscal policy. For each of the following fiscal policy proposals, determine whether the primary focus is on aggregate demand or aggregate supply or both.
a. A $1000 per person tax reduction.
b. A 5% reduction in all tax rates.
c. Pell grants, which are government subsidies for college education.
d. Government sponsored prizes for new scientific discovery.
e. An increase in unemployment compensation.
Explanation / Answer
a) Debt-GDP ratio :
b) Average yearly budget deficits/surplus
2000 2010 Average
Greece 127-138= (11) 308-488= (180) (11)+(180)/10 = (19.1)
Ireland 98-34= 64 206-104= 102 64+102/10 = 16.6
Portugal 118-62= 56 231-190= 41 56+41/10 = 9.7
Spain 586-292= 294 1420-700= 720 294+720/10 = 101.4
c) Greece is in the worst fiscal shape as it is having budget deficit which means its expenditure is more than the revenues while other countries are having budget surplus.
4) The demand side of fiscal policy focuses on increasing the consumption in the economy whereas supply side focuses on improving production of goods and services in the economy.
a) Aggregate demand as with reduction in taxes, consumers will be left with more disposable income which will lead to increase in consumption in the economy.
b) Both aggregate demand and supply. Manufacturers will be encouraged to produce more as profit will be more and cost will be less. And also households will have more personal disposable income to consume.
c) Aggregate supply as it will make people more skillful and thus ready for job industry leading to more production.
d) Aggregate supply as it will act as an incentive to produce and innovate new discoveries.
e) Aggregate demand as unemployed will have more money to spend on consumption.
Country 2000 2010 Greece 138/127= 1.086 488/308 =1.584 Ireland 34/98 = 0.349 104/206 = 0.504 Portugal 62/118 = 0.525 190/231 = 0.822 Spain 292/586 = 0.498 700/1420 = 0.492Related Questions
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