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SEMESTER SPRING 2013
ASSIGNMENT NO. 02
DUE DATE: 04TH JULY, 2013
Economy of Pakistan is facing many problems at a time. Top most economic
issues are poverty, energy crisis, unemployment, inflation and slow growth rate.
To combat these problems of plummeted economy, economist’s team collected
previous year’s data. On the basis of this data, they will decide to take whopping
step to solve these economic problems. Hypothetical data of Pakistan’s economy
is given below:
Title of account Amount in Billion Rs.
Corporate profit 200
Social Insurance contribution 250
Net interest 350
Govt. Transfer to individual 50
Personal interest Income 40
Personal Tax 410
National income 1500
In that year, adult population and labor force were 700000 and 60000 respectively.
Population growth rate of the economy was 1.80% or 0.018. To make policies for
implementation, analytical reports containing calculations are needed.
Using above data, calculate:
a. Personal income
b. Personal disposable income
c. Labor force participation rate
Suppose, marginal propensity to consume (MPC) of the economy is 0.90, how
much income will change if taxes are increased by Rs.10 billion.
(Note: Write down all relevant steps involved in calculation)
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Part A: See lesson no. 6 ( other measure of Income) ....this part is Done !!
Next Part B : Suppose, marginal propensity to consume (MPC) of the economy is 0.90, how
much income will change if taxes are increased by Rs.10 billion. Discuss Please !!
By increasing or decreasing taxes, the government affects households' level of disposable income (after-tax income). A tax increase will decrease disposable income, because it takes money out of households. A tax decrease will increase disposable income, because it leaves households with more money. Disposable income is the main factor driving consumer demand, which accounts for two-thirds of total demand
R. A. Khan thanks for sharing
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Solution Part (a):
PI = NI - Corporate Profit - Social insurance contributoin - net interst + dividends + govt. transter to individual + Personal Interst income
Part (b): Disposable Personal Income = PI- Tax
Part (c): Labor Force participation rate = labor force / adult population * 100
put the values in the formula n get the answers ...
first answer is = 890
2nd answer is = 480
third answer is = 8.57
and do discuss the question 2 in the assignment .... :)
2nd question answer is
as per page 81 of handouts
-9 nahi ata ??
for Part B Lecture 26 calculate the tax multiplier my answer is coming Rs. -90 billion
page #15 allthe formulas are given of question no-1 and its (c) parts formula is labour force/adult population*100
for question#2 look at page number 81 of handouts ;)
mano ji thanks
MPC= dC/dY where C = consumption , Y = income
so the MPC will decrease as here C is decreasing.According to the formula MPC will increase as the C increases and vice versa
my pleasure M.Tariq Malik ji and remember me in prayers