Question: Country A recently instituted a burden-sharing program between the Ministry of Finance and Central Bank. Under this program, Central Bank agrees to directly purchase $550

Country A recently instituted a "burden-sharing" program between the Ministry of Finance and Central Bank. Under this program, Central Bank agrees to directly purchase $550 T worth of government bonds in the primary market in order to fund the Covid-19 fiscal response. Some argue that this is akin to "printing money" as the central bank is directly financing the budget deficit. This is different to the standard procedure where the government issues bonds to the private sector in order to finance the deficit.

a. Do you agree with this assessment? Explain precisely!

b. Will this have an impact on both the money supply and country A's government expenditure? Explain using the IS-LM graph!

c. Despite the massive monetary and fiscal support provided by both the government and the central bank of country A, GDP growth remains muted. Why do you think this is the case? Explain using the IS-LM graph(hint:what do you think happened to C, I, and money demand?)

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