Questions

1.Explain the impact of COVID19 crisis on any Pacific island Economy. Discuss specifically its impact on GDP, trade, inflation, employment and business activity. Supplement with the relevant national statistics, where possible.

2.Drive the AD (Aggregate Demand) curve using the following: IS curve is given as Y = 20XX-100i, LM₁ is Y= 1000+25i (when P = 1) and LM₂ is Y= 500+25i (when P =2), where XX is 75. Show the derivation in (interest rate-income) and (price level-income) spaces. (Please insert a snapshot of the graphs if drawn manually).

3.Suppose the IS curve is Y = 39XX-100i and Y = 1500 + 250i is the LM curve, where XX is 75. Using these compute:

a)The equilibrium interest rate and output (i*and Y*).

b)If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate.

c)Determine the impact of the above policy on private investment if it is known that di/dA = XX/100, where XX is 75

d)Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is 5.

e)Explain the dynamics represented in (a-d) using an IS-LM space. (Please insert a snapshot of the graph if drawn manually).

4.Show using the IS-LM graph the impact of an expansionary fiscal policy if the LM curve is vertical. If you were the Economic Planner in this country, how would you implement the fiscal policy without causing any crowding out of private investment? (Please insert a snapshot of the graph if drawn manually)