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| From www.eprothomalo.com |
To rationalize my discussion I shall consider thecase: 1.The Impact of Subside on Fuel Price
1. The Impact of Subside On Fuel price:
If the government continues to provide subside on fuel price then govt. spending will increase increase in government spending will decrease the National Saving.Because from classical macro economics we know:
National Saving= Total Saving =S= (Y-T-C)+ (T-G)= Private Saving + Public Saving
Here Public Saving = Tax - Govt. Spending
Decrease in national saving will decrease the supply of loanable funds to the Investors. Decrease in supply of loanable funds will increase interest rate. Increase in interest rate will decrease the overall investment in the economy.
Therefore increasing the subside on fuel price will decrease Investment in Private Sector.
The consequences of low investmnets are:
1.Unemployment
2.Availability of low fund to power plant projects
3. Shortage of electricity
4.Low Growth in Industry
5.Low GDP Growth
Therefore to make sure the availability of supply of loanable funds govt. will increase the money supply and inflation will rise. The senior citizens will be harmed by the policy.This will also harm the low income people significantly.
My Opinion regarding the subside of fuel price is quite clear that Govt. should increase the fuel price and subside should not be continued for the long run welfare of Macro Economy.
