2. Given: C = 250 + 0.8 Y I = 150 G = 300 TR = 100 NX = 100 t =0.25 i) Find the equilibrium level of income. ii) Suppose, b 50, MPS falls to .05, I falls to 10, G falls to 100 and NX falls to 10. How much TR should the government increase to have the same level of equilibrium income as in part i)? iii) In determining the required change in TR in part ii), which multiplier did you use and why? (Hint: keep in mind the consumption tendency households may have under the COVID 19 situation in selecting the multiplier).
2. Given: C = 250 + 0.8 Y
I = 150
G = 300
TR = 100
NX = 100
t =0.25
i) Find the equilibrium level of income.
ii) Suppose, b 50, MPS falls to .05, I falls to
10, G falls to 100 and NX falls to 10. How much TR should the government increase to have
the same level of equilibrium income as in part i)?
iii) In determining the required change in TR in part ii), which multiplier did you use and why?
(Hint: keep in mind the consumption tendency households may have under the COVID 19
situation in selecting the multiplier).
iv) Draw a graph to show the appropriate changes between part i) and part ii).
v) Give an example related to current Bangladeshi situation where the government may follow a
'Transfer Promoting Policy' instead of a 'Growth Promoting Policy' in determining who gets the
transfer payment.
vi) Instead of paying transfer (TR) if the government were to increase government spending (G),
what type of crowding out would you expect? Briefly explain.
vii) As we have observed recently that, a lot of the assistance from the government is being
misappropriated by dishonest individuals and as a result is not reaching the target population.
What role can proper institution play to rectify such mishandling of government fund? Explain.
4. a) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the
b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not? (3)
c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum increase in the money supply be what you found it to be in part a)? Why or why not?
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