(a) Distinguish between the following pairs of terms:
i. capital expenditure and recurrent expenditure:
ii. fiscal policy and monetary policy.
b. Explain four reasons why the government of a country imposes taxes.
Explanation
(a) i. Capital expenditure: These are expenses made by the government on physical assets that are durable in nature, On the other hand, Recurrent expenditure: Those are expenses that are made by the government on regular basis.
ii. Fiscal policy: This is the use of taxation and government spending to achieve desired economic objectives while Monetary policy involves the use of instruments such as interest rates; open market operations, etc. to regulate money Supply to achieve desired economic objectives.
(b) i. To raise revenue for administration, defense and to provide social services.
ii. To regulate the importation of some commodities considered harmful. The taX makes the goods expensive to deter consumers.
iii. To redistribute income between the rich and the poor. This is done through the PAYE System where the rich pay higher tax than the poor.
iv. To protect local infant industries from foreign competition.
v. To correct a balance of payments problem by imposing taxes on imports to increase their prices to discourage imports.
vi. To check deflation or inflation
vii To prevent dumping. Taxes are imposed on dumped goods to raise their prices to discourage imports
viii As a retaliatory measure against other countries.
ix. To create and protect employment in the domestic economy.