A)DRAW A GRAPH. How reductions in taxes impact Consumption, investemnt, G, overnment spending, AD, AS, P, Q, inflation, Unemployment, GDP and economic growth. B)DRAW A GRAPH. How should the Federal Reserve Bank execute Monetary Policy and how it itimpact Consumption, investemnt, G, overnment spending, AD, AS, P, Q, inflation, Unemployment, GDP and economic growth.
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- What is a key distinction between monetary policy and fiscal policy in economic management?A. Monetary policy involves government spending and taxation, while fiscal policy focuses on interestrates and money supply.B. Monetary policy is set by the central bank, while fiscal policy is determined by the government'sbudget decisions.C. Monetary policy primarily influences employment and economic growth, while fiscal policy mainlyaffects inflation.D. Monetary policy is a short-term strategy, while fiscal policy is a long-term approach to economicmanagement.What is the advantage of monetary policy over fiscal policy? O. Monetary policy can be implemented faster than fiscal policy O. Once implemented, the effect of monetary policy can be realized faster than fiscal policy O. The monetary policy affecting Investment category, which is more flexible than the Consumption and Government expenditure category O. Monetary policy is more effective at reducing the recessionary/inflationary gap1. The monetary transmission mechanism can be depicted in the form of a graph or using symbols.Explain, with the aid of symbols, the monetary transmission mechanism when interest rates increase (Note: Prices and wages are variable.)2. Explain, using the AD‐AS model, how the South African Government can use fiscal policy as a tool to recover from the negative effects of this COVID‐19 pandemic.Your answer must include the following: The description of the type of fiscal policy required; An explanation of how the implementation of this tool will work their way through the economy to achieve the desired effect; The AD‐AS graph showing the implications of your recommendations. (5)Marks will be awarded for your ability to integrate theory with the scenarioprovided.
- I. Identification__________1. Shows combination of interest rates and the levels of output such that planned spending equals income.__________2. Monetary policy characterized by a decrease in money supply that results to a higher interest rate.__________3. Shows all combinations of interest rates and levels of income such that the demand for real balances is equal to the supply.__________4. It occurs when expansionary fiscal policy causes interest rates to rise, thereby reducing private spending, particularly investment.__________5. A policy on the regulation of the supply of money in the circulation.__________6. The policy of the government with regard to the level of government purchases, the level of transfers and the tax structures.II. Modified TRUE or FALSE: Write TRUE if the statement is correct and if the statement is false, choose the word or group of words that makes the statement false and write the correct word or group of words to make the statement correct.1. The lower the…Other things being equal, a decrease in the money supply will: A. decrease both investment spending and aggregate demand. B. decrease investment spending and increase aggregate demand. C. increase both consumption spending and aggregate demand. D. increase both investment spending and aggregate demand. E. increase investment spending and decrease aggregate demand1. Which of the following is concerned with changing the aggregate demand of thenation?A) External balanceB) Internal balanceC) Expenditure-changing policiesD) Expenditure-switching policiesAnswer: 2. Which of the following is an example of an expansionary monetary policy?A) Increase in TaxesB) Increase in the nation's money supplyC)Increased government expendituresD) Reduction in taxesAnswer:
- 1. A fiscal expansion coupled with a monetary expansion must always causea) Output to riseb) Output to fallc) Interest rates to rised) Interest rates to fall 2. Autonomous consumption isa) a function of disposable incomeb) a function of national incomec) a function of GDPd) a function of savinge) independent of the level of income 3. Monetary policy loses its effectiveness in all of the following situations EXCEPTa. When the IS curve is vertical.b. When the LM curve is nearly horizontal.c. When interest rate controlled by the Fed reaches zero.d. When the IS curve is horizontal. 4. In a small open economy, if the government adopts a policy that lowers imports, then that policy: a) raises the real exchange rate and increases net exports. b) raises the real exchange rate and does not change net exportsc) raises the real exchange and decreases net exportsd) lowers the real exchange rate 5. An increase in the trade surplus of the a small open economy could be the result of a. a domestic…If the Bank of Canada believes the economy is about to fall into recession, what actions should it take? If the Bank of Canada believes the inflation rate is about to increase, what actions should it take? If the Bank of Canada believes the economy is about to fall into recession, it should A. use an expansionary fiscal policy to increase the interest rate and shift AD to the right. B. use a contractionary monetary policy to lower the interest rate and shift AD to the left. OC. use its judgment to do nothing and let the economy make the self adjustment back to potential GDP. O D. use an expansionary monetary policy to lower the interest rate and shift AD to the right. If the Bank of Canada believes the inflation rate is about to increase, it should O A. use a contractionary fiscal policy to increase the interest rate and shift AD to the left. O B. use an expansionary monetary policy to lower the interest rate and shift AD to the right. OC. use a combination of tax increases and…Which of the following statements is true?a. Keynesians advocate increasing the moneysupply during economic recessions butdecreasing the money supply during eco-nom1c expansions.b. Monetarists advocate increasing the money supply by a constant rate year afteryear.c. Keynesians argue that the crowding-out effect is rather insignificant.d. Monetarists argue that the crowding-out effect is rather large.e. All of the answers are correct.
- On June 5, 2003, the European Central Bank acted to decreasethe short-term interest rate in Europe by half a percentagepoint, to 2 percent. The bank’s president at the time, WillemDuisenberg, suggested that, in the future, the bank could reducerates further. The rate cut was made because European coun-tries were growing very slowly or were in recession. What effectdid the bank hope the action would have on the economy? Bespecific. What was the hoped-for result on C, I, and Y?If the central bank desired to increase spending in the economy, using the instruments ofmonetary policy, explain how the central bank can indirectly achieve this?Assume we combine contractionary fiscal policy with expansionary monetary policy. The result is of this policy mix is O higher interest rates and lower output O higher interest rates and an indeterminate level of output O lower interest rates and an indeterminate level of output lower interest rates and higher output