Question

Explain how the following events affect national income expressed on an expenditure basis as Y = C + I + G + X - M if at all and provide an analysis of their impact if any on social welfare.  

a) Firms increasingly decide to “outsource” specialized and needed services such as accounting, marketing, etc… to domestic firms.

b) Households are increasingly characterized by two working spouses instead of one spouse staying at home to provide child care and homemaking  

c) In a closed economy (no international trade) the central government raises taxes on its working citizens and redistributes the proceeds to elderly retirees.  

d) The US Federal Government imposes harsh restrictions on the commercial fishing industry in New England’s Gulf of Maine.  

Answer 1

a) Firms increasingly decide to “outsource” specialized and needed services such as accounting, marketing, etc… to domestic firms.

It is termed as expenditure on import of services and the country loses revenue paying to the foreign country which goes out. Thus it is a loss for the country. But at the same time it leads to social welfare as the other countries who are specialized in certain services bring about more expertise and get employmnet opportunities.Moreover, few countries due to their expertise carry out the taskat low cost and thus the customers get the benefit in the form of low price.

b) Households are increasingly characterized by two working spouses instead of one spouse staying at home to provide child care and homemaking .

It increases the national income as the servicesof hosewives go unnoticed but a working professional's salary is added in national income. Thus the households increase their expenditure on personal consumption. It also increases the national income and more number of financially independent people lead to betetr living standards and thus social welfare.

c) In a closed economy (no international trade) the central government raises taxes on its working citizens and redistributes the proceeds to elderly retirees.  

It leads to more government income in the form of taxes and less expenditure by the public in their personal consumption because of less disposable income left after tax deductions.It leads to social welfare as the senior citizens requirements are being taken care by the government.

d) The US Federal Government imposes harsh restrictions on the commercial fishing industry in New England’s Gulf of Maine.  

As a result of the restrictions, people's earning from the fishing gets affected and thus their personal consumption level also gets negatively affected.This leads to lower national income. But it leads to flourising of the fish species.