WAEC Economics 2020 Theory — Question 4

Model answer

(a)(i) Capital expenditure can be defined as the capital which does not repeat itself yearly; it is a one-off expenditure and it is usually huge in amount. It is usually channeled for development programmes. On the other hand, recurrent expenditures are expenditures which reoccur yearly. (ii) Fiscal policy is the use of government tools or public finance tools to regulate or manage the economy, such as tax and budget. Meanwhile, monetary policy is the instrument of monetary authority (Central Bank) used to regulate or manage the economy, such as interest rate, supply of money. (b) Reasons for imposition of tax (any four): i. To generate revenue for the government: the greatest source of income is tax; the government imposes tax so as to generate income to manage the economy. ii. To regulate the economy: also, the government imposes tax to regulate the economy. If there is too much money in circulation, the government can impose higher tax so as to reduce the volume of money in circulation. iii. To protect domestic and infant industry: also, the government can impose tax (discouraging one) on imports so as to make it expensive to import, so as to create demand for domestic firms. iv. To redistribute the income: the government imposes higher tax on the rich and used the income generated from it to provide facilities that will be used by all at the same time.