Date of Award

5-1-1988

Degree Type

Thesis

University or Center

Atlanta University (AU)

Degree Name

M.A.

Department

Economics

First Advisor

Dr. Fred O. Boadu

Abstract

The role of government expenditure is very important to the growth of the economy. There has been a continuous rise in government spending such that Liberia is faced with serious debt problems and growing deficits. It is with this concern that the researcher has employed the macroeconomic theory to examine the components influencing the growth level in the Liberian economy. The purpose of this research is to forecast the level of growth in the Liberian economy with gross domestic product representing the total output level of the economy, i.e., the growth level. It is hypothesized that the country will experience growth in terms of an increase in its total output (GOP = Y) which is influenced by an increase in aggregate demand. The components of GOP, Y, are: Cp =personal consumption; I=increase in capital stock; G =government purchases; and X- M =net exports. A macroeconomic model is built based on the theoretical equation Y = Cp + I + G + (X - M), using the accounting framework. The fifteen-years time-series study (1970-84) employed linear regression to forecast growth in the Liberian economy. The estimated macro equation is:ŷ=102.16 + 9.87 F + 6.33 Px +77 G- 2.16 Pm

s2 = 19,909.457 R2 = .94where F =Foreign capital inflows (grants); Px =The unit value for exports; G = Government spending; and Pm = The unit value for imports. The R2, with a high percentage of variation (94 percent), explains the goodness-of-fit of the actual values to the predicted values. According to the results, investments (increase in stocks) are not stimulating growth (Y), neither is the high level of import demand. It is recommended that government continue to critically reexamine investment and import tax policies. Since tax is a major stimulator of growth, government must continue to create and improve jobs, thereby improving consumers' income levels. With the implementation of the progressive tax system, higher taxes will be paid, resulting in higher tax revenues, i.e., increasing the growth level of the economy.

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Economics Commons

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