FINAL EXAMINATION

SUBMITTED BY : MALAIKA MUNIR KHAN

ENROLLMENT # : 01-111192-049
DEPARTMENT : BBA
SECTION : 2-D
SUBJECT : MACROECONOMICS
SUBMITTED TO : MISS RABIA HAMAD
ANSWER # 01

1 2 3 4 5 6 7 8 9 10
a c c

ANSWER # 02

PART (A)

PART (B)

Costs of inflation
Price inflation is considered a very serious economic problem as it causes some
serious problems in an economy, some of which are as follows:

It decreases the value of money and assets

Rise in price level known as, ceteris paribus, which means money can buy lesser
goods. If your assets are in monetary form, then inflation means that the value of
that asset  falls. This is the reason why, individuals usually like to keep their wealth in
the form of physical assets,for example property instead of keeping it in a form of
monetary in a bank account.
It redistributes income between groups
Inflation can bring an un planned re-distribution of income as inflation does not have
an equal impact on different groups or individuals. For example, those individuals
who are able to protect their earnings/assets from inflation will eventually increase
their income as compared to those who can’t.  Similarly, it is the best time for
borrowers do much better as the real value of their pay backs are decreased over
time. However, in order to overcome this Lenders could charge a higher interest rate
in settlement for the reduced value of the repayments, and also to overcome the loss
of liquidity suffered.
PART (C)
Differences between short run and long curve Phillips curves:

Short run Phillips curve Long run Phillips curve

1.short-run Phillips curve is vertical 1.Long-run Phillips curve is horizontal.

2. short run phillips curves slope 2.long run Phillips curve slope upwards which
downward means negative relationship means positive relationship between
between inflation and unemployment. unemployment rate and inflation

A. The short-run Phillips curve is downward sloping and the long-run Phillips curve is
upward sloping.
B. The short-run Phillips curve is upward sloping and the long-run Phillips curve is
vertical.
C. The short-run Phillips curve is horizontal and the long-run Phillips curve is upward
sloping.
D. The short-run Phillips curve is downward sloping and the long-run Phillips curve is
vertical.
E. The short-run Phillips curve is vertical and the long-run Phillips curve is upward
sloping.

difference between short run and long run Phillips curve?

PART (D)
(a) Investment is a component of aggregate demand, so when investment decreases,
AD decreases (shifts left) as indicated on the graph above. This decreases output
from Y to Y', and the price level falls from PL to PL'.

(b) Employment rises and falls with the (real) output level. In this case employment
will decrease because output decreases.

(c) To offset the effects of the decrease in investment, the government could
increase its expenditures (G) or decrease taxes. With an increase in G, AD will
increase since G is a componenet of AD. The increase in AD will increase output and
the price level. Increases in government borrowing in the loanable funds market will
increase the interest rate, as will increases in the demand for money resulting from
increases in income.

(d) The central bank could buy government bonds to increase the money supply. The
increase in the money supply will cause real interest rates to fall. AD will increase
because investment and interest-sensitive consumption will both increase, and both
investment and consumption are components of AD. The increase in AD will cause
the price level and output to increase.

(e) If the central bank continues to increase the money supply, the price level will
continue to increase as explained in part (d), resulting in an increase in inflation. The
higher price level and lower interest rate that result from an increase in the money
supply will make domestic prices and interest rates relatively unattractive. The
domestic currency will be exchanged for foreign currency by those wishing to
purchase goods and invest capital elsewhere, and less domestic currency will be
demanded by foreigners, causing a devaluation of the domestic currency in foreign exchange
markets.

ANSWER # 03
ANSWER # 04

Salient Features of Budget 2020-2021

The budget 2020-21 has the following salient features:

–Total outlay of budget 2020-21 is Rs 7,294.9 billion. This size is 11 percent lower
than the size of budget estimates 2019-20.

–The resource availability during 2020-21 has been estimated at Rs 6,314.9 billion
against Rs 4,917.2 billion in the budget estimates of 2019-20.

–The net revenue receipts for 2020-21 have been estimated at Rs 3,699.5 billion
indicating an increase of 6.7 percent over the budget estimates of 2019-20.

–The provincial share in federal taxes is estimated at Rs 2,873.7 billion during

2020-21, which is 11.7 percent lower than the budget estimates for 2019-20.

–The net capital receipts for 2020-21 have been estimated at Rs 1,463.2 billion
against the budget estimates of Rs 831.7 billion in 2019-20 reflecting an increase

https://nation.com.pk/11-Jul-2020/russia-warns-of-growing-nuclear-war-threat

of 75.93 percent.
–The external receipts in 2020-21 are estimated at Rs 2,222.9 billion. This shows a
decrease of 26.7 percent over the budget estimates for 2019-20.

–The overall expenditure during 2020-21 has been estimated at Rs 7,294.9 billion,
out of which the current expenditure is Rs 6,345 billion.

–The development expenditure outside PSDP has been estimated at Rs 70 billion in

the budget 2020-21.

–The size of Public Sector Development Programme (PSDP) for 2020-21 is Rs 1,324
billion. Out of this, Rs 676 billion has been allocated to provinces.

–Federal PSDP has been estimated at Rs 650 billion, out of which Rs 418.7 billion for
Federal Ministries/Divisions, Rs 100.4 billion for Corporations, Rs 3 billion for
Earthquake Reconstruction and Rehabilitation Authority (ERRA), Rs 7 billion for
COVID responsive and other natural calamities programme.

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Revenue Receipts

–Total Federal Board of Revenue taxes for the year 2020-21 are estimated at

Rs 4,963 billion.

— Non-tax revenues for the upcoming year are estimated at Rs 1,108.9 billion.

— Gross revenue receipts are estimated at Rs 6,573.22 billion out of which provincial
share is Rs 2,873 billion.

–The net revenue receipts for federal government in budget 2020-21 are estimated
at Rs 3,699 billion, showing an increase of 6.8 percent over the budget estimates of
2019-20 and 19.24 percent over revised estimates of outgoing fiscal year 2019-20.

External Resources:
–The government obtained loans and grants to bridge the gap between the receipts
and expenditure. The net external resources for 2020-21 after deduction of foreign
loans repayment (Rs 1,228 billion) and repayment of short term credits (Rs 183
billion) have been projected at Rs 810.34 billion are lower by 73 percent and 64.34
percent respectively when compared with budget and revised estimates 2019-20.

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Current Expenditures:

–Total current expenditures of federal government for the year 2020-21 are
estimated at Rs 6,344 billion which are 16.7 percent and 12.99 percent lower when
compared to the revised estimation and actual estimation of current expenditures
during outgoing year.

–Mark-up payments for the year 2020-21 have been estimated at Rs 2,946 billion out
of which Rs 2,631 billion would be paid on domestic debt and Rs 315 billion on
foreign debt.

–Expenditures of Rs 470 billion have been estimated for pensions which are

1.4 percent higher when compared to the revised estimates of Rs 463.4 billion for

the outgoing year 2019-20.

–For Defence Affairs and Services, an amount of Rs 1,289 billion has been estimated
for the year 2020-21 compared to revised estimation of Rs 1,227 billion

for the outgoing fiscal year 2019-20.

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–For grants and transfers, Rs 904 billion have been estimated against Revised
estimation of Rs 1,177 billion for the year 2019-20.

–Subsidies have been estimated at Rs 209 billion against revised estimation of

Rs 349.5 billion for 2019-20.

–For running of Civil government, Rs 475.7 billion have been estimated for the fiscal
year 2020-21 against revised expenditures of Rs 445.8 billion in 2019-20.

Strengthen the fiscal policy 

 Fiscal policy is the means by which a government adjusts its spending levels
and tax rates to monitor and influence a nation's economy.
 It is the sister strategy to monetary policy through which a central bank
influences a nation's money supply.
 Using a mix of monetary and fiscal policies, governments can control
economic phenomena.

By increasing tax base, strengthening the Federal bureau of revenue (FBR), improving
tax machinery and audit, simplifying procedures, automating the whole system. This
will truly help increase the fiscal grip on tax evasion mafias and resultantly, national
income will increase.

A sound fiscal position is an essential pre-requisite for achieving macroeconomic

stability and is a critical ingredient of sustainable economic growth and poverty
reduction. Better fiscal management helps mobilize domestic savings, increase
efficiency of resource allocation and achieve other worthwhile development goals.
On the other hand, lax fiscal policy limits options open to the government for
economic recovery, sustainable growth and poverty alleviation. The present study
evaluates the fiscal situation in Pakistan and sheds light on its implications for
Economic Growth and poverty reduction. Study finds that Pakistan economy have
shown great resilience over the years against disastrous events. However, situation
of poverty reduction is not satisfactory; Pakistan‘s health and education indicators
depict a dismal picture when compared with the countries with same level of
development. As revenue generation efforts was only partially successful and
Pakistan was unable to generate adequate revenues to meet expenditure.
Consequently, successive governments have tried to reduce the deficit by reducing
the development expenditure which hampered the growth process and resulted in a
decline in human development indicators and increased the incidence of poverty.