SEMESTER FALL 2019
PRINCIPLES OF MACROECONOMICS (ECO303)
DUE DATE: JANUARY 24, 2020 MARKS: 10
Social protection schemes introduced by government are very helpful in reducing poverty and providing health facilities to the low income people. Government of Pakistan has introduced many schemes regarding transfer payments like Benazir Income Support Programme (BISP), Pakistan Poverty Alleviation Fund (PPAF) and Ehsaas Program etc. In current federal budget, amount for BISP is 180,000 million rupees while for Pakistan Poverty Alleviation Fund is 2,150 million rupees. Transfer payments are also helpful in reducing deflationary gap and increasing national income through multiplier effect. Due to increase in transfer payments, marginal propensity to consume (MPC) also increases.
(a) Suppose during year 2019, due to an increase in transfer payments, Marginal Propensity to Consume (MPC) increases from 0.55 to 0.60 then calculate transfer payments multiplier (KR).
(b) By using the transfer payments multiplier (KR) value calculated in part (a), find the change in national income if transfer payment amount increases from 185 billion rupees to 210 billion rupees.
How increase in transfer payment amount will impact the aggregate demand curve?
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