1. A-level Economics Project — BUDGET DEFICIT

2. Introduction It is in the time of liquidity trap, the interest rate is very low and the increase in money supply will have no effect on increasing national income. The way to increase national income is to carry out expansionary fiscal policy. When national income increase the government revenue will gradually increase.

3. r y y1 y2 IS1 IS2 LM

4. r Dmsp LiquidityTrap

5. For the policies that proposed by our new Financial Secretary, Mr Tong Ying-lin, he will use 2 methods to reduce the budget deficit. 1. reducing expenditure 2. raising revenue

6. Reducing Expenditure A. Cutting operating expenditure - by restructuring the government department to increase its productivity - can reduce government expenditure Agree!

7. B. Cut the size of civil servant -privatization -will not harm the morale of civil servants -can reduce operating expenses Agree!

8. r y y2 y1 LM IS1 IS2

9. C. Cut the pay of civil servant - will harm the morale of civil servants -reduce the income of citizen affect the aggregated demand and will reduce national income Disagree!

10. D. Keep the amount of social welfare as before -don ’ t affect the income of citizens and also the aggregated demand and national income Agree!

11. Raising Revenue Raising Revenue A. Increase salaries tax - reduce the disposal income of citizen affect the aggregated demand and will reduce national income Disagree!

12. B. Increase profit tax -affect the incentive to invest Disagree!

13. C. Increase motor vehicles first registration tax -can reduce the number of cars on the road -reduce the problem of pollution Agree!

14. D. Increase air passenger departure tax -demand for departure through airline is inelastic Agree!

15. E. Increase betting duty -a kind of luxury, not affect all people -can reduce the betting incentive of people Agree!

16. F. Football betting duty -a kind of luxury, not affect all people -can reduce the betting incentive of people Agree!

17. G. Issuing bonds -reduce the money supply, interest rate increase and investment decrease -contraction effect Disagree!

18. H. Selling or privatization of government assets -reduce the size of government -reduce the size of civil servants -wealth of government Agree!

19. I. Boarder tax and sale tax - affect all citizens -reduce people disposal income of citizen affect the aggregated demand and will reduce national income Disagree!

20. J. Increase fee and charge -can raise government revenue -will not affect all citizens Agree!

21. Our Proposal

22. 1. Increase infrastructures - Increase employment and the national income will increase

23. 2. Increase retaining -reduce the structural unemployment and fiction unemployment

24. 3. Restructure government department (e.g. 破產審計處 ) - increase its productivity