Question Consider that the Ghanaian economy is a small and close, which is characterised by the following. AD=C+I+G+NX C=a+bY* Y*=disposal income T=T0 I=I0 G=G0 Md/P=Ld(Y,i) Ms=money supply ,which is given . AD=Aggregate demand ,C=consumption,G=Government expenditure ,T=Tax,P= Pricelevel,I=Investment,NX=Netexports (a) Consider an increase in Government spending ∆ > .Assume for now that both price and expected price are fixed. Also assume that government does not implement any other policy than the increase in Government spending. What is the effect of this policy on the goods market?
Question
Consider that the Ghanaian economy is a small and close, which is
characterised by the following.
AD=C+I+G+NX
C=a+bY*
Y*=disposal income
T=T0
I=I0
G=G0
Md/P=Ld(Y,i)
Ms=money supply ,which is given .
AD=Aggregate demand ,C=consumption,G=Government expenditure ,T=Tax,P=
Pricelevel,I=Investment,NX=Netexports
(a) Consider an increase in Government spending ∆ > .Assume for now that both price and expected price are fixed. Also assume that government does
not implement any other policy than the increase in Government spending.
What is the effect of this policy on the goods market?
(b) What is the effect on equilibrium in the
swells labelled diagram, showing both money supply and demand before the
policy was implemented, and that after the policy was implemented in the
same graph.
(c) Solve for equilibrium in the goods market.
d) Suppose the policy change is rather a increase in real money supply not a
decrease in government spending.What is the effect of this policy on
consumption in the short run? (Provide a brief explanation).
(e) If the government of Ghana decided to run a balance budget, provide an
expression for the balance budget multiplier.
(f) What is the effect of the balance budget policy in (e)above on output (y)?
(g) Dorcas is given Ghs 10,000.00 to pay for her school fees next semester.She
decided to deposit GHS 600.00 in her ADB account and the rest indifferent
bank.Assume that he
other bank , determine the amount of supply in the economy.
(h) How would your answer change if she decides to put all the money in the other
bank?
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