ECO403 GDB 1 Solution and Discussion

[zareen]

Total Marks 5
Starting Date Monday, January 20, 2020
Closing Date Tuesday, January 28, 2020
Status Open
Question Title Fiscal policy
Question Description

The Case:

South Korea is 4th largest economy in Asia. This economy has a strong export base and skilled labor force. Important sectors of this economy are automobiles, shipbuilding, mining and tourism. South Korea achieved a landmark in tourism in November, 2012 by attracting 10.3 million visitors. It was the first time that the number of foreign tourists topped 10 million in a year. Suppose, in order to meet the expenditures faced by tourism department of South Korea Ministry of Culture, Sports and Tourism, government decides to increase the direct and indirect tax rate.

Requirement:

Keeping in view the above facts and figures, Explain logically that how would this strategy (Increase in taxation) affect the incomes and consumption of the people of South Korea?

Note: Be specific in your answer. Write to the point in your own words. Avoid irrelevant details.

[zareen]

Full report of SBP attached

[zareen]

@zareen said in ECO403 GDB 1 Solution and Discussion:

The prices of food in the country have risen radically throughout the year. The rise in the prices of wheat flour, sugar, vegetables and pulses are stimulating inflation in the country. There are several reasons behind the increasing food inflation in Pakistan. A main reason of rising inflation is that the economy of Pakistan had been undergoing broad-based inflationary forces during the past years due to the execution of stabilization policies intended to reduce the deficits in current and fiscal account. The pandemic of COVID-19 disrupted food supply chains which also caused high rates of inflation. The decrease in the production of major and minor food crops, predominantly wheat caused a huge decline in the supply and leads to rise in inflation.

Requirement: Logically discuss the effects of high inflation on the economy of Pakistan? You are required to discuss only two effects.

due date is 22.12.2020

Price Trends3.1 Overview Inflation edged up slightly in FY01 after recording a three-decade low last year. The average rate of inflation in terms of Consumer Price Index (CPI), rose to 4.4 percent in FY01 from 3.6 percent in the previous year.

1. Despite this increase, future outlook for inflation remains subdued as the marginal rate of inflation edged down to 2.5 percent from 5.1 percent last year.2 In fact, the current year witnessed a historic low for marginal rate of CPI inflation. In terms of Wholesale Price Index (WPI), the average rate of inflation has gone up, much more sharply than CPI, from 1.8 percent in FY00 to 6.2 percent this year. In contrast with CPI, marginal rate for WPI has gone up from 3.4 percent in FY00, to 4.5 percent in FY01. Thus the future trend for WPI is not as optimistic as that of CPI. As for the Sensitive Price Indicator (SPI), inflation has gone up from 1.8 percent in FY00 to 4.8 percent, but marginal rate has gone down from 3.3 percent in FY00 to 2.0 percent in FY01. Future inflation outlook, therefore, both in terms of CPI and SPI remains subdued. The rate of inflation as measured by the GDP deflator (conceptually a broader measure of inflation), has also increased to 5.4 percent in FY01 from 3.1 percent last year.
   Table 3.1 depicts the average and marginal rates of inflation for the three price indices, while Figure 3.1 shows monthly inflationary trends. A variety of factors contributed towards the observed price increase during FY01:
   ??In the international market, prices of some essential commodities like POL increased. As a key input in various economic activities, some impact on domestic prices was inevitable. The surge in international oil prices was translated through upward adjustment in retail oil prices, electricity tariff and gas charges, which adversely affected the domestic cost of transportation, production and distribution of goods and services.
   ??The Rupee depreciated by 18.6 percent against the US Dollar during FY01, thus making imports more expensive. The import unit value index of many groups recorded substantial

[zareen]

The prices of food in the country have risen radically throughout the year. The rise in the prices of wheat flour, sugar, vegetables and pulses are stimulating inflation in the country. There are several reasons behind the increasing food inflation in Pakistan. A main reason of rising inflation is that the economy of Pakistan had been undergoing broad-based inflationary forces during the past years due to the execution of stabilization policies intended to reduce the deficits in current and fiscal account. The pandemic of COVID-19 disrupted food supply chains which also caused high rates of inflation. The decrease in the production of major and minor food crops, predominantly wheat caused a huge decline in the supply and leads to rise in inflation.

Requirement: Logically discuss the effects of high inflation on the economy of Pakistan? You are required to discuss only two effects.

due date is 22.12.2020