Answer to Question #235611 in Macroeconomics for Shabbz

Question

State “A” has a targeted government expenditure of US$4 Billion from an estimated GDP of US$ 40 Billion while State “B” has a targeted government expenditure of US$5 Billion from an estimated GDP of US$ 100 Billion. Which state would you specify as expansive and which state would you classify as restrictive? Explain why you classify them so and show all your workings.

Answer 1

percentage of GDP used as government expenditure by state A$=\frac{4million}{40million}\times100\%=10\%$

percentage of GDP used as government expenditure by state B$=\frac{5million}{100million}\times100\%=5\%$

From the calculations, state A is expansive while state B is restrictive since it spends less than state A.