Question 3 (a) Assume that a government cuts its expenditure and therefore runs a public-sector surplus. (Your answer should be 100 words +10%) (1) What will this mean for the equilibrium national income? (II) What will this mean for the demand for money and to interest rates? (III) Under what circumstances will it lead to a (i) decrease in money supply, and (ii) no change in money supply? (IV) What effect will each of the two scenarios in (III) will have on the rate of interest rate compared with its original level?

Question 3 (a) Assume that a government cuts its expenditure and therefore runs a public-sector surplus. (Your answer should be 100 words +10%) (1) What will this mean for the equilibrium national income? (II) What will this mean for the demand for money and to interest rates? (III) Under what circumstances will it lead to a (i) decrease in money supply, and (ii) no change in money supply? (IV) What effect will each of the two scenarios in (III) will have on the rate of interest rate compared with its original level?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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