Topic is under macroeconomics. 6 questions to answer in total.
Read the questions carefully. Answer all the questions. You have to type out the assignment completely in MS Word, along with diagrams and boxes. You may use the drawing options of MS Word or Paint or anything you are comfortable with.
1. “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 government increases money supply do you think if will affect product market? How it will affect i. the price level, value of money, and ii. loanable fund market? Use the relevant diagrams. 05+05+05
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? Do you think it will be continued inflation? Why? Draw a relevant diagram to explain your answer. 02+04+02
2. Suppose 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. 03
b. What is the appropriate activist Fiscal policy response in this regard? In which direction would the activist policy shift aggregate demand? Use Diagram. 03
c. Did the activist fiscal policy destabilize the economy? Explain and Use diagram. 04+02