a. Describe Schumpeter’s 4 phase mode of a trade cycle (8 marks)
b. What is Fiscal Policy? Expalin the objectives of fiscal policy in a developing country (8 marks)
c. In what ways could fiscal policy be used to bring about price stability? ( 7 marks)
d. What are the limitations of fiscal policy? (7 marks)
Answers
Answer:
a.During these decades there have been four Schumpeterian cycles of prosperity, recession, depression and recovery (Fig. ... Thus P1 is the first phase of prosperity, R1 recession, D1 depression, RE1 the first recovery phase and so on.
b.Primarily, fiscal policy in a developing economy, should aim at achieving an accelerated rate of economic growth. But a high rate of economic growth cannot be achieved and maintained without stability in the economy. Therefore, fiscal measures such as taxation, public borrowing and deficit financing etc.
c.The role of fiscal policy. Fiscal policy can promote macroeconomic stability by sustaining aggregate demand and private sector incomes during an economic downturn and by moderating economic activity during periods of strong growth.
d.Large scale underemployment, lack of coordination from the public, tax evasion, low tax base are the other limitations of fiscal policy.