The following excerpt is taken from the Ministry of Finance: Statement on the economic effects and financial response to the COVID 19 Pandemic in Trinidad and Tobago. "The Central Bank of Trinidad and Tobago is helping the economy navigate through these difficult circumstances. For example, the Central Bank has reduced the reserve requirements for the commercial banks from 17.0 percent to 14.0 percent; and the repo rate from 5.0 percent to 3.5 percent." "As a result, Commercial banks have reduced their prime lending rates from an average of 9.5 percent to 7.5 percent; the narrowing spread between lending rates and deposit rates will surely bring about improved efficiency within the banking system." "It should be noted that whereas the reduction in the prime lending rate has an automatic beneficial effect on loans that have a variable interest rate, the commercial banks have advised that loan agreements with fixed interest rates require one-on-one consultation with the commercial banks, to discuss possible reductions." From the above excerpt answer the following questions: a. b. What form of monetary policy is the Central Bank using to address the downturn in the economy resulting from COVID-19? Identify and explain two macroeconomic issues resulting from the COVID-19 pandemic on the Trinidad and Tobago economy. Critically assess how changes in the repo rate and the reserve requirement ratio will impact the money supply in the economy.
The following excerpt is taken from the Ministry of Finance: Statement on the economic effects and financial response to the COVID 19 Pandemic in Trinidad and Tobago. "The Central Bank of Trinidad and Tobago is helping the economy navigate through these difficult circumstances. For example, the Central Bank has reduced the reserve requirements for the commercial banks from 17.0 percent to 14.0 percent; and the repo rate from 5.0 percent to 3.5 percent." "As a result, Commercial banks have reduced their prime lending rates from an average of 9.5 percent to 7.5 percent; the narrowing spread between lending rates and deposit rates will surely bring about improved efficiency within the banking system." "It should be noted that whereas the reduction in the prime lending rate has an automatic beneficial effect on loans that have a variable interest rate, the commercial banks have advised that loan agreements with fixed interest rates require one-on-one consultation with the commercial banks, to discuss possible reductions." From the above excerpt answer the following questions: a. b. What form of monetary policy is the Central Bank using to address the downturn in the economy resulting from COVID-19? Identify and explain two macroeconomic issues resulting from the COVID-19 pandemic on the Trinidad and Tobago economy. Critically assess how changes in the repo rate and the reserve requirement ratio will impact the money supply in the economy.
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Transcribed Image Text:The following excerpt is taken from the Ministry of Finance: Statement on the economic
effects and financial response to the COVID 19 Pandemic in Trinidad and Tobago.
"The Central Bank of Trinidad and Tobago is helping the economy navigate through these
difficult circumstances. For example, the Central Bank has reduced the reserve requirements
for the commercial banks from 17.0 percent to 14.0 percent; and the repo rate from 5.0 percent
to 3.5 percent."
"As a result, Commercial banks have reduced their prime lending rates from an average of 9.5
percent to 7.5 percent; the narrowing spread between lending rates and deposit rates will surely
bring about improved efficiency within the banking system."
"It should be noted that whereas the reduction in the prime lending rate has an automatic
beneficial effect on loans that have a variable interest rate, the commercial banks have advised
that loan agreements with fixed interest rates require one-on-one consultation with the
commercial banks, to discuss possible reductions."
From the above excerpt answer the following questions:
a.
b.
d.
What form of monetary policy is the Central Bank using to address the downturn in the
economy resulting from COVID-19?
Identify and explain two macroeconomic issues resulting from the COVID-19
pandemic on the Trinidad and Tobago economy.
Critically assess how changes in the repo rate and the reserve requirement ratio will
impact the money supply in the economy.
Using the Keynesian Transmission Mechanism, clearly explain and graphically
illustrate the impact of the stimulus measures on aggregate demand and GDP.
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Transcribed Image Text:The following excerpt is taken from the Ministry of Finance: Statement on the economic
effects and financial response to the COVID 19 Pandemic in Trinidad and Tobago.
"The Central Bank of Trinidad and Tobago is helping the economy navigate through these
difficult circumstances. For example, the Central Bank has reduced the reserve requirements
for the commercial banks from 17.0 percent to 14.0 percent; and the repo rate from 5.0 percent
to 3.5 percent."
"As a result, Commercial banks have reduced their prime lending rates from an average of 9.5
percent to 7.5 percent; the narrowing spread between lending rates and deposit rates will surely
bring about improved efficiency within the banking system."
"It should be noted that whereas the reduction in the prime lending rate has an automatic
beneficial effect on loans that have a variable interest rate, the commercial banks have advised
that loan agreements with fixed interest rates require one-on-one consultation with the
commercial banks, to discuss possible reductions."
From the above excerpt answer the following questions:
d.
e.
Using the Keynesian Transmission Mechanism, clearly explain and graphically
illustrate the impact of the stimulus measures on aggregate demand and GDP.
Examine two fiscal policy tools that the Government can used to achieve similar results
of that of the Central Bank of increasing employment and economic growth.
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