Macroeconomics Answers

An economy has no banks. The total money supply amounts to $2000 and the people of the economy keeps away the money under their blankets. Then Kuddus Mia opens the first bank, Bank Kuddus. Following the footsteps three other bank open up, Bank Mojnu, Bank Lailee and Bank Jarina. Also, the government sets up a Central Bank accordingly and the minimum reserve ratio is set at 15%. Explain how money supply is created using T-Accounts and describing the process involving all mentioned four banks. Also, calculate the total money supply created at the end of the process (Hint: money multiplier).

Suppose the economy is stuck in a Recessionary Gap. Now the government wants to deploy expansionary Fiscal Policy tools to move the economy back to long-run equilibrium. Explain the following scenarios with appropriate graphs: a. There are no lags in the implementation process. b. There are lags in the implementation process.

Explain the Keynesian Consumption Model in details using an example. Suppose the economy is stuck in a Recessionary Gap, using a graph explain how you can utilize the concept of the Keynesian Consumption Model to explain how government can push back the economy to the long-run equilibrium.

One of the core Classical Economist believes was the flexibility of prices. Explain how Keynes showed otherwise from the perspective of the economy’s labor market with the aid of a diagram.

. Suppose the economy is in the long-run equilibrium & everybody in the economy is affected by a buying bugs, so they all start buying more. With the aid of appropriate diagram/s show and explain what will happen in the economy, according to the Classical Perspective. *

Suppose you are all in a Barter Economy. Explain Say’s Law in the context of this Barter Economy (of course using a model example). Now suppose all of you have transitioned to a Monetary System economy. Now explain how Say’s Law holds (from the Classical Economist perspective) and of course continuing from the previous example.

An increase in costs will

A1. Tikea is an open economy with high capital mobility and a fixed exchange rate against
Euro. Prices are given in the short run. The Tikean government is currently debating a large
cut in the autonomous part of its income taxes to fight the current pandemic.
a) Analyze the effects of such a temporary tax cut graphically and verbally. Explain what
would happen to the following for Tikea: short run equilibrium income, interest rates,
investment, the value of Tikean Lira (consider Tikea as the domestic economy and use ETL/€
for Tikean Lira/Euro exchange rate), the net exports, the level of capital inflows and the
level of foreign exchange reserves at the central bank. Make sure you explain the
mechanism(s) behind your results.
b) How would your answer to part a) change if there is low capital mobility?
c) Now analyze the long run effects of a permanent tax cut (again assume high K-mobility).
You should explain both the short run and long run adjustments of the macroeconomic
aggregates in part a)

Under a fixed exchange rate regime, can a country aain both internal and external
balances using only expenditure-changing policy? Use the related graphical tool and a
verbal explanation. Also, make sure you explain the meanings of “expenditure-changing”
and “expenditure-switching” policies in your answer.

John secured the bank's $2,000 mortgage to buy a car. After the contract was written it turned out that inflation in the economy was lower than expected. Who gained from this development and who lost? Explain Within 100 words