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In a recent article on BusinessLive, Duma Gqubule argues that South Africa does not have a real central bank. He criticises the conduct of monetary policy and puts forward a range of proposals under the umbrella term monetary finance.
2. Represent Gqubule’s reasoning using the AD’-PC model from chapter 7: 2.1 The Covid-19 lockdown as a supply shock only. (6) 2.2 His monetary policy proposals. (6) 2.3 His proposals for what to do when too much money is created.
(all on a single graph, with explanations, please)
Gross fixed capital formation 5000rs
Net investment 4000rs
Inventory investment 500
consumption,
government purchases,
national saving,
investment.
Assume the economy is in a recession. Explain how each of the following policies would affect consumption, investment and national income (GDP). In each case, indicate any direct effects, any effects resulting from changes in the macroeconomic variables and the overall effect in the economy. If there are conflicting effects making the answer ambiguous, say so.
1) How monetary policy influences aggregate demand and how these can be used to expand the economy?
Assume the economy is in a recession. Explain how each of the following policies would affect consumption, investment and national income (GDP). In each case, indicate any direct effects, any effects resulting from changes in the macroeconomic variables and the overall effect in the economy. If there are conflicting effects making the answer ambiguous, say so.
a) How fiscal policy influences aggregate demand and how these can be used to expand the economy?
Suppose GDP is Rs.10.3 trillion, taxes are Rs.1.8 trillion, private saving is Rs.1.2 trillion, and public saving is Rs.0.2 trillion. Assuming this economy is closed, calculate
Assume that the banking system has total reserves of Rs.150 billion. Assume also that required reserves are 20 percent of checking deposits and that banks hold no excess reserves and households hold no currency.
- Calculate the money multiplier?
- Calculate the money supply?
If the State Bank of Pakistan now raises required reserves to 25 percent of deposits,
- Calculate the money multiplier?
- What will be the effect on Reserves? (Please write only one word “Increase”, “Decrease”, or “No Change” in the blank)
- The amount of money supply will decline to
Assume there are no transfer payments and taxes and Yd=Y, given the following functional values answer the questions below:
Consumption function: C=100+0.7YD
Planned investment: I=40
Government expenditure: G=80
Find the equilibrium level of income in the economy.
Find the equilibrium level of income in the economy if government expenditure increases to 120 and find the change in the equilibrium income level from part a to b.
in a free market such drinks are very popular, its producers spend a lot of money on advertising, they are widely used in fast-food industry, and they cause some kind of addiction, that's why sugary drinks may be over consumed.
Evaluate the view that imposing a tax is the most effective government policy for reducing the market failures arising from overconsumption of unhealthy food and drink?
In 2018, the UK Government will impose a new tax on sugary drinks, aimed at tackling obesity.
Behavioral economists believe that taxation alone is unlikely to be very effective in reducing
consumption. By 2050, obesity is predicted to affect 60% of adult men, 50% of adult women and
25% of children. It is associated with a range of health problems including type 2 diabetes,
cardiovascular disease and cancer.
Required:
1. Explain why, in a free market, sugary drinks may be over consumed. (5 marks)
2. Evaluate the view that imposing a tax is the most effective government policy for reducing the market failures arising from overconsumption of unhealthy food and drink.
