Question 3 (a) Assume that a government cuts its expenditure and therefore runs a public-sector surplus. (Your answer should be 100 words +10%) (1) What will this mean for the equilibrium national income? (II) What will this mean for the demand for money and to interest rates? (III) Under what circumstances will it lead to a (i) decrease in money supply, and (ii) no change in money supply? (IV) What effect will each of the two scenarios in (III) will have on the rate of interest rate compared with its original level?
Question 3 (a) Assume that a government cuts its expenditure and therefore runs a public-sector surplus. (Your answer should be 100 words +10%) (1) What will this mean for the equilibrium national income? (II) What will this mean for the demand for money and to interest rates? (III) Under what circumstances will it lead to a (i) decrease in money supply, and (ii) no change in money supply? (IV) What effect will each of the two scenarios in (III) will have on the rate of interest rate compared with its original level?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter30: Government Budgets And Fiscal Policy
Section: Chapter Questions
Problem 48CTQ: If the government gives a 300 tax cut to everyone in the country, explain the mechanism by which...
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Answer Part B only please. Include a scan of the diagram if you are able to. Thank you!
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