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 equilibriumin the money market? Present your answer in a well-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.
a) 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*=disposalincome
T=T 0
I=I 0
G=G0
Md/P=Ld(Y,i)
Ms=money supply, which is given.
AD=Aggregate
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 equilibriumin the
a well-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 an 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 out put (y)?
g)Dorcas is given Ghs10,000.00 to pay for her school fees next semester. She
decided to deposit Ghs600.00 in her ADB account and the rest in a different
bank. Assume that the
other bank,determinethe 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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