Question 1:

i) Is there a stable and inverse link between unemployment and inflation?

ii) The government announces that expansionary policies will be enacted in a view to reduce unemployment. Use Friedman's adaptive expectation framework to show the effects of such policies in both the short run and long run.

Question 2:

i) Describe why the government should make provision of social goods. Briefly describe these goods.

ii) What do you meant by negative externalities? Examine the different means that a government can use to tackle these problems.

Question 3:

Write on any two of the following. (Each part carries equal marks).

i) Public sector borrowing requirement
ii) International fiscal coordination.
iii) Direct versus Indirect taxes.