The Discussion Questions (1)
1. Given the government expenditure, whether the government budget is in surplus or deficit depends on the tax revenue, which itself depends on rate of tax. Please derive the tax rate at which the government budget is in balance. Draw the graph that reflects the relation between tax rate and deficit (or surplus).
2. In the model of multiplier analysis, we do not discuss how supply (defined as the actual produced output) is determined. Discuss the possible ways of supply determination. Can supply affect the demand?
3. What is quantity theory of money? What is the implied assumption behind the quantity theory of money? How it is different from Keynesian theory on the demand for money? What is the effect of an increase in money supply according the quantity theory of money? (You can find the quantity theory of money in our two reference books)
4. Suppose on average that the households keep q proposition of money in their pockets. What is the money multiplier in this case?
