“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.” a) What type of fiscal policy is this? b) 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. c) Will this lead to budget deficit? Do you think crowding out will be an issue given the current Covid-19 crisis?
“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.”
a) What type of fiscal policy is this?
b) 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.
c) Will this lead to budget deficit? Do you think crowding out will be an issue given the current Covid-19 crisis?
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