Answer to Question #158613 in Macroeconomics for Talha Ali

Question

A: The Government of Bangladesh opted for expansionary fiscal policy to fight economic depression. Identify the type of inflation it is expected to create and its impact on the wages. Illustrate the process on the graph.              (2.5 Marks, Maximum 150 words)

B:  Assume the Pakistan’s economy is in recession: Pakistan implements a combination of expansionary fiscal and monetary policy. In the absence of complete crowding out what will be the effect of these policies on each of the following: (2.5 Marks, Maximum 150 words)

      i. Aggregate demand in Pakistan

      ii. The price level in Pakistan

      iii. Interest rates in Pakistan

Answer 1

A. The number of jobless people in a country helps to show the growth of the economy. A lower rate of jobless people in an economy is because of high business practices, more income in an economy and also agricultural production in the country. A government can reduce the rate of jobless through expansionary fiscal or monetary policy. The policymakers do not look the reaction between jobless rate and inflation rate. When the rate of jobless rate is low the inflation rate rises to bring the jobless rate to normal. When the unemployment rate is higher the inflation rate lowers. A normal unemployment happens with a sustainable economic growth the country. When the unemployment rate is below the natural rate, the results is that the economic growth of a country is higher. This leads to high demand of income and prices leading to high inflation rate. If the rate of jobless is high, the results is a reduced inflation rate. Income is necessary in imports and exports of goods and services in a country, therefore high or lower income pushes the total income to the same direction.

B. i. The expansionary monetary policy raises the income supply in a country resulting to large consumer spending. This shifts the aggregate demand right way

ii.

Expansionary monetary policy rises the occurrence of income in a country leading to higher consumer spending and large economic growth.

iii. Monetary policy is practiced by central banks to increase income supply in a country. This lowers the interest rate, increases income supply and inflation rate of a country determining the employment and growth of an economy.