Question 6 (7 marks)

After the typhoon Haiyan devastation the Philippine economy experienced a recession during the period 2020-2021. Answer the following questions:

1. Suppose the Philippine Reserve Bank reduced interest rates in order to reduce the severity of the recession on the economy. Examine the effect of interest rate reduction in the Philippine economy. (3 marks)
2. "The cost of rebuilding the Philippines aftertyphoon Haiyan could reach USD 5.8bn", a senior official has said. Assume the government of Australia Department of Foreign Affairs and Trade provided a grant of USD 5.8 billion. Also assume that despite the hardships the Philippine families experienced, 15% was the beneficiary savings from the Australian grant. Further, assume all other factors remain constant. Calculate the total effect of the spending multiplier of the Australian government grant on the Philippine economy GDP growth. (2 marks)
3. Examine the overall multiplier effect of the USD5.8 billion grant on thePhilippine economy.