For each of the following scenarios, tell a story and predict the effects on the equilibrium level
Question:
For each of the following scenarios, tell a story and predict the effects on the equilibrium level of aggregate output (Y) and the interest rate (r):
a. Faced with a likely recession, country A’s government and central bank decide to act jointly by increasing government expenditure on infrastructure and launching a new bond acquisition program.
b. Country B’s government decides to reduce its debt-to- GDP ratio by implementing austerity policies consisting of public spending cuts and tax increases. To alleviate the impact of fiscal policy on output and employment, the central bank increases money supply.
c. In country C, growing concerns about the stability of the banking sector lead the central bank to significantly increase the reserve requirement rate.
d. Consumer confidence is rapidly increasing in country D, signaling the end of an ongoing recession. The central bank keeps the money supply constant.
e. Sluggish demand at home prompts the government in country E to increase public expenditure while the central bank proceeds to sell government securities in an attempt to reduce money supply.
Step by Step Answer:
Principles Of Macroeconomics
ISBN: 9781292303826
13th Global Edition
Authors: Karl E. Case,Ray C. Fair , Sharon E. Oster