Question

In: Economics

Suppose that the federal government is considering two alternative spending bills. The first would purchase land...

Suppose that the federal government is considering two alternative spending bills. The first would purchase land for $80 billion to protect an endangered species, while the second would use the $80 billion to build new highways. How would these spending bills affect the cash and capital accounts of the federal government?

Solutions

Expert Solution

Capital Accounts : It gives a summary of the capital expenditure and income for a country. It gives a summary of private and public investment into an economy. It includes FDI or other investment.

The federal government has two alternatives, one of them is purchasing land for protecting endangered species. It would be beneficial for the country or economy too. The expenditure would be spent on securing endangered species including plants and animals. Actually it is not spending ; it is an investment , Capital investment. Government is preserving forest ecosystem which leads to the bio-diversity. Biodiversity has the valuable role to play in securing environment which supposed to be as capital investment. Preserving the endangered species leads to good buisness of tourism. It will attracts the tourist from the various corners of the world. Some endangered species from plants are useful in medical science. Climate would be improved by the taking care of the nature in this way. So there are plenty of resources which would be beneficial for the economy as well as for the capital account of the federal government. This transaction of expenditure would be recorded and there will be reduction in the account of capital cause of payment.

If the federal government decide to spend on infrastructure like building highways. The volume of governments public sevices undoubtedly expanded and its benefits accrued to the governments cash and capital account. Change in physical or financial asset ownership for a nation is important for the capital account of federal government. Spending on the building highways is a transaction. It would be recorded in the building account for the acquisition of the infrastructure and a reduction in the Cash account for the payment made.

In this way, federal government would invest for long term for infrastructure and land acquisition for protecting endangered species will be beneficial for a country. It would reduce the cash from the federal governments capital account.


Related Solutions

Suppose government spending increases. Would the effect on aggregate demand be larger if the Federal Reserve...
Suppose government spending increases. Would the effect on aggregate demand be larger if the Federal Reserve held the money supply constant in response or if the Fed were committed to maintaining a fixed interest rate? Explain.
Would it be more likely for the federal government to increase taxes or decrease spending?
Would it be more likely for the federal government to increase taxes or decrease spending?
A company with EBIT of $6,000,000 is considering two financing alternatives. The first alternative would have...
A company with EBIT of $6,000,000 is considering two financing alternatives. The first alternative would have interest expense of $2,000,000 and 1,000,000 common shares outstanding, whereas the second would have interest expense of $3,800,000 but only 750,000 shares outstanding. The company is in the 35% tax bracket. Part 1: Construct the bottom half of the income statement (including EPS) for each financing alternative when EBIT is at $6,000,000. Part 2: Construct the bottom half of the income statement (including EPS)...
Question 3: Suppose federal government decreases taxes by (ΔT= 10 million) and increases government spending by...
Question 3: Suppose federal government decreases taxes by (ΔT= 10 million) and increases government spending by (ΔG = 20 million), as a result output is changed by (ΔY). a. (10 points) Assuming that the Federal reserve changes money supply such that the interest rate stays constant and marginal propensity to consume is MPC= 0.6. What is the change in output (ΔY)? What is ΔY ? What is ΔY? Show your work. ΔT ΔG b. (10 points) If the fed does...
Suppose the government is considering levying one of two taxes. The first tax is a lump...
Suppose the government is considering levying one of two taxes. The first tax is a lump sum tax which raises $200 from Terry, who has the usual-shaped preferences. The second tax is an excise tax on the consumption of internet services which also raises $200 from Terry. Which of the following statements is/are correct? Select one: a. Terry would be better off under the excise tax than under the lump sum tax b. Under the excise tax, the change in...
16. A county is considering using a piece of park land for one of two alternative...
16. A county is considering using a piece of park land for one of two alternative projects. Project A would require construction costs of $180,000 (year 0) and generate net benefits of $35,000 per year for 8 years. (The benefits are realized at the ends of years 1 through 8). Project B would require construction costs of $2.25 million and generate net benefits of $150,000 per year for 24 years. (The benefits are realized at the ends of years 1...
Mandatory spending is spending that: A) includes all federal government spending. B) supports programs that do...
Mandatory spending is spending that: A) includes all federal government spending. B) supports programs that do not get determined annually but instead are set in law. C) includes all state and local government spending. D) is appropriated by Congress annually. Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 1%, then the Fed will want the new real interest rate to be: A) lower than the neutral interest rate. B) higher than the neutral...
explain how the various categories of federal government spending (such as spending on entitlements, or infrastructure...
explain how the various categories of federal government spending (such as spending on entitlements, or infrastructure or basic research) qualify as either consumption or investment spending. explain how the various categories of federal government spending (such as spending on entitlements, or infrastructure or basic research) qualify as either consumption or investment spending.
Suppose the federal government unexpectedly decreases its spending. With the aid of an aggregate demand-aggregate supply...
Suppose the federal government unexpectedly decreases its spending. With the aid of an aggregate demand-aggregate supply diagram, explain how this contractionary fiscal policy affects the price level, P, and total output, Y, in the short-run. How does the economy adjust to this policy in the long-run? What is the effect of this policy on P and Y in the long-run? [Note: Assume that the economy is in a long-run equilibrium prior to the increase in government spending. Also assume that...
What is mandatory spending also known as discretionary spending by the federal government? Define and give...
What is mandatory spending also known as discretionary spending by the federal government? Define and give examples.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT