Answer to Question #156464 in Economics for riya

Question

In late February 2020, Kuwait government took some early initiatives to control the Coronavirus pandemic. For Kuwait, the pandemic is considered to be a Double-Edged Sword, as the lower demand for oil has reduce the nation’s income and has paralyzed the domestic economic activities. Despite government support, many companies continue to lay off workers, which may lead to further reduction of national income. Kuwait government also allowed the employers to adjust their labor management practices (hiring, firing and salary adjustment). In early March 2020, Kuwait government mandated all the banks to holt/stop the deductions of mortgage payments or loans installments for nest six months. 

1. Discuss how the above decision could affect per-capita GDP and standard of living. (10 points)

2. If people decided to keep the money in the bank accounts, explain how this policy decisions will affect money supply and price level. (10 points)

3. If the loan and mortgage deductions were not made from April to September, using graph, describe how this policy will impact Kuwait economy’s loanable funds market. (10 points)

4. Kuwait government took a major economic policy not to renew the residency visas of those expatriates who are older than 60 years. Using a graph, explain, how this policy will affect labor demand, supply and equilibrium wage and number of workers who will be able to find the job? (10 points)

By the end of December 2019 Kuwait money supply (M2) was 38,129.2 million dinars and by the end of December 2020, the money supply was increased to 40,068 million dinars. Assume that Kuwait government is considering the increased money supply and wanted to take measures to reduce the money supply. Discuss the impact of increased money supply in the economy and discuss the steps the government could take to reduce the money supply. (10 points) 

Answer 1

1. The above decision could increase per-capita GDP and standard of living.

2. If people decided to keep the money in the bank accounts, then this policy decisions will increase money supply and price level.

3. If the loan and mortgage deductions were not made from April to September, then this policy will increase supply of loanable funds.

4. This policy will not affect labor demand, will decrease labor supply, increase equilibrium wage and decrease number of workers who will be able to find the job.

The increased money supply will increase the price and inflation levels in the economy, the government could implement contractionary monetary policy to reduce the money supply.