Explain your answer and draw an AD-SRAS-LRAS diagram to show the possible effects of the Government paying half of the interest on the loans that will be disbursed by the banks.
Answer the questions base following extract taken from an article named “Bangladesh PM unveils
massive stimulus package to counter adverse effects of coronavirus,” published in The Hindu Business
Line. (link: https://www.thehindubusinessline.com/news/world/bangladesh-pm-unveils-massive-
stimulus-package-to-counter-adverse-effects-of-coronavirus/article31261915.ece)
“Bangladesh Prime Minister Sheikh Hasina on Sunday announced stimulus packages to the tune of Taka
72,750 crore (USD 8,573 million) to counter the adverse effects of coronavirus on the country’s
economy.”
“The premier said the first of the four packages involves Taka 30,000 crore to be provided to affected
industries and service sector organisations as working capital through banks as low-interest loans. She
said the commercial banks would provide the amount as loans from their own funds to concerned
industries and enterprises on the basis of bank-client relations.
The premier said the government would pay half of the interest amounts to banks as subsidies to the
affected enterprises, which would pay the rest of the interest.
“The interest rate of this lending facility will be 9 per cent and the concerned industries and business
organisations will pay 4.50 per cent interest, meaning half of the interest of that loan,” she said.”
Explain your answer and draw an AD-SRAS-LRAS diagram to show the possible effects of the
Government paying half of the interest on the loans that will be disbursed by the banks.
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