“The Bangladesh Bank has created additional money worth Tk70,794 crore through various refinance schemes and easing regulatory requirements after the Covid-19 outbreak in March for stimulating demand to revive the declining economy.” (link: https://tbsnews.net/economy/banking/bangladesh-bank-creates-money-worth-over-tk70000cr-revive-economy-76435?fbclid=IwAR108OXKcbXq6JjZj6v9FbULrDtys_QsZySUTKeAmauoqTjppgnLqU89muw#.Xq5kdXhgRqq.facebook).  

a)If the government increases the money supply do you think it will affect the product market? How it will affect i. the price level, value of money, and ii. loanable fund market? Use the relevant diagrams. 

b)According to Monetarism, when does an increase in money supply change both Real GDP and price level? In the short run or in the long run? Explain your answer using a diagram.

c)Do you think creating this additional money will lead to inflation? What type of inflation, demand-induced or supply-induced?

d) Do you think it will be continued inflation? Why? Draw a relevant diagram to explain your answer. 

2.Suppose a recent wave of pessimism engulfs consumers and firms, causing them to reduce their expenditures. 

a)Demonstrate this event using the model of aggregate demand and aggregate supply and assuming that the economy was originally in long-run equilibrium.  

b)What is the appropriate activist Fiscal policy response in this regard? In which direction would the activist policy shift aggregate demand? Use Diagram. 

c)Did the activist fiscal policy destabilize the economy? Explain and Use diagram. 

Answer rating: 100% (QA)

a When there is an increase in money supply it will lead to an increase in prices of goods and services It will also affect the value of money because the purchasing power will fall In the sense that ... View the full answer