Question

What are the advantages and disadvantages of increasing the money supply to pay for government-supplied goods and services?

What is the impact of financing capital project using taxation as opposed to borrowing on current and future consumption and saving?

Answer 1

1) Increasing the money supply to pay for government-supplied goods and services has both advantages and disadvantages:

Advantages:

• Government supplied goods will be more accessible to common people.
• Government supplied goods and services are mostly the basic need of people, so money supply in the market will fullfill the basic need of people.
• People will pay for basic requirement like toll for flyover, charges for street light etc.
• It will improve the country's living cost index.
• Goverment can spend more on people's welfare as they will able to sell their goods at more affordable rates means more consumption and spending by people.
• people will get goods on more subsidised rates.
• Country's economy will grow as it will encourage small businesses to grow and provide more job opportunities.

Disadvantages:

• Disadvantages are that increasing money supply might result in the inflationtionary prices.

2) The impact of financing a capital project using taxation as opposed to borrowing on current and future consumption and savings is that if capital projects are financed through taxation, government will have less money in hand to invest on basic need and welfare of society. Capital projects are those projects which requires huge capital investments. If Government spends more of tha accumulated taxation amount on capital project, it means it will spend less on other needs of society like education and on food. Spending in Capital projects through taxation will boost the economy but ignores the basic needs of society.