Question 3 (a) Assume that a government cuts its expenditure and therefore runs a public-sector surplus. (Your answer should be 100 words ±10%) (1) What will this mean for the equilibrium national income? (II) What will this mean for the demand for money and to interest rates? (III) Under what circumstances will it lead to a (i) decrease in money supply, and (ii) no change in money supply? (IV) What effect will each of the two scenarios in (III) will have on the rate of interest rate compared with its original level?

Question 3 (a) Assume that a government cuts its expenditure and therefore runs a public-sector surplus. (Your answer should be 100 words ±10%) (1) What will this mean for the equilibrium national income? (II) What will this mean for the demand for money and to interest rates? (III) Under what circumstances will it lead to a (i) decrease in money supply, and (ii) no change in money supply? (IV) What effect will each of the two scenarios in (III) will have on the rate of interest rate compared with its original level?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter30: Government Budgets And Fiscal Policy

Section: Chapter Questions

Problem 48CTQ: If the government gives a 300 tax cut to everyone in the country, explain the mechanism by which...

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Assume that a government cuts its expenditure and therefore runs a public-sector surplus. (a) What will this mean for the equilibrium national income?(b) What will this mean for the demand for money and to interest rates?(c) Under what circumstances will it lead to a (i) decrease in money supply, and (ii) no change in money supply?(d) What effect will each of the two scenarios in (c) will have on the rate of interest rate compared with its original level?
Assume that a government cuts its expenditure and therefore runs a public-sector surplus. What will this mean for the equilibrium national income? What will this mean for the demand for money and to interest rates? Under what circumstances will it lead to a (i) decrease in money supply, and (ii) no change in money supply? What effect will each of the two scenarios in (III) will have on the rate of interest rate compared with its original level?
Which one of the following statements regarding the demand for money is correct? (a) A positive relationship exists between the quantity of money demanded and the prevailing interest rate in an economy; (b) The demand for money is made up of the sum of all the money balances that participants in the economy would like to have; (c) For a given interest rate, an increase in nominal income increases the demand for money; (d) Two key factors that impact on the demand for money by individuals are savings and investments available to participants.
D4) Finance please describe the fdi inflow in zimbabwe as a percentage of gdp and explain the possible reasons for the fluctuations
9) Consider a credit boom where bank lending increases a) What is likely to happen to the money supply? Explain. b) Explain whether such a boom would more likely be inflationary or deflationary. c) Given your answer from (b), would borrowers or lenders more likely benefit?
Suppose that an economy has a constant nominal money supply, a constant level of real output Y = 1500, and a constant real interest rate r = 0.05, and it’s expected rate of inflation is 2%, i.e, πe = .02. Suppose that the income elasticity of money demand is ηY = 0.5 and the interest elasticity of demand ηi = –0.2. (a) Suppose that Y decreases to 1425, r remains constant at 0.05 and there is no change in the expected rate of inflation. What is the percentage change in the equilibrium price level? (b) Suppose that r increases to 0.06 and Y remains at 1500. Assuming that expected inflation remains at πe = .02, what is the percentage change in the equilibrium price level? (c) Suppose that r increases to 0.06. Assuming that πe = .02, what would real output have to be for the equilibrium price level to remain at its initial value?
14) The relationship between monetary policy and the time it takes for policy to change spending is an example of the benefits of "leaning against the wind" why fiscal policy is preferable because it does not suffer from lags. the condition that monetary policy affects the economy almost immediately the problem that monetary policy affects aggregate demand primarily by changing interest rates but it takes time for changes in interest rates to alter spending.
D: the magnitude of the change in investment would depend on the slopes of the real money demand curve and the investment demand curve. Under what conditions would there be a large change?
Suppose there is a permanent decrease in the country's money supply. (a) Describe the immediate effect on the foreign currency graph. (b) Describe the short-run effect on the rates of return graph. (c) Describe the long-run effect on the money graph. (d) Ássuming the net overall long-run effect is such that financial account is positive, primary budget is balanced, and investment is zero, then explain what happens to private saving and public debt.
C = 0.8(1 – t)Y I=90050i G 2,000 M t = 0.25 L = 0.5Y 125i = 1,500 ē Task 5. Solve for the equilibrium income and interest rate when real money supply increases to 2,000. In doing so, assume that government spending is back to its original value. Tasks 6. Solve for the equilibrium income and interest rate when the tax rate decreases to 0.10. In doing so, assume that government spending is back to its original value. Task 7. What policy (e.g., expansionary/contractionary monetary/fiscal) can the government pursue to prevent or reduce the effects of crowding out? Graph and explain your answer. =
Which one of the following statements is NOT true? (a) Money is the most liquid asset.(b) Money is a store of value.(c) Money is a unit of account.(d) Money is another term for income.Q.1.6 Which of the following will cause the demand curve for money to shift to the right?(a) An increase in real Gross Domestic Product (GDP).(b) A decrease in the repo rate.(c) An increase in the quantity of money available.(d) A decrease in the quantity of money available.Q.1.7 A budget deficit occurs when: (a) there is an increase in taxation.(b) government spends less than is generated by taxation.(c) government spending is very high.(d) Government spends more than is generated by taxation.
110.) Which of the following is not a result of expansionary OMOs? Less investment spending. Decrease in the federal funds rate. Banks make more loans. None of the above.