Chapter 18: Q.6 (page 451)
What are some steps the government can take to encourage research and development?
Direct government funding of R&D, tax incentives for R&D, protection of intellectual property.
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Illustrate the concept of Ricardian equivalence using the demand and supply of financial capital graph.
Assume that the newly independent government of Tanzania employed you in 1964. Now free from British rule, the Tanzanian parliament has decided that it will spend 10 million shillings on schools, roads, and healthcare for the year. You estimate that the net taxes for the year are eight million shillings. The government will finance the difference by selling 10-year government bonds at 12% interest per year. Parliament must add the interest on outstanding bonds to government expenditure each year. Assume that Parliament places additional taxes to finance this increase in government expenditure so the gap between government spending is always two million. If the school, road, and healthcare budget are unchanged, compute the value of the accumulated debt in 10 years.
The U.S. government has shut down a number of times in recent history. Explain how a government shutdown will affect the variables in the national investment and savings identity. Could the shutdown affect the government budget deficit?
Explain how decreased domestic investments that occur due to a budget deficit will affect future economic growth.
What are some fiscal policies for improving a society’s human capital?
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