The government of Australia has embarked on various policies such as Job Keeper and the provision of subsidies to firms in order to reduce the severity of COVID 19 on the economy. Suppose the money supply expands such that the Reserve Bank predicts that the economic expansion is not sustainable. Use two diagrams one for the money market and another for the goods and services (Aggregate Demand and Aggregate Supply model), to explain the policy that the Reserve Bank can adopt in order to overcome the effect of increasing the money supply on the economy. Assume that: the money supply increased from the equilibrium of AUD 40 billion to AUD 70 billion Interest was reduced to the interest rate of 1.5% as part of the stimulus package for the nation to overcome the effects of COVID 19. But the equilibrium interest rate is 4% Assume that equilibrium real GDP is AUD 60 billion Assume that inflation during the COVID crisis was at an equilibrium price of CPI 65 Assume that to overcome the inflationary crisis aggregate demand has to reduce by AUD 30 billion. Assume to restore the economy to equilibrium inflation has to be adjusted to CPI 120 This is the completion of the tutorial
The government of Australia has embarked on various policies such as Job Keeper
and the provision of subsidies to firms in order to reduce the severity of COVID 19 on the
economy. Suppose the money supply expands such that the Reserve Bank predicts
that the economic expansion is not sustainable.
Use two diagrams one for the
(Aggregate Demand and
Reserve Bank can adopt in order to overcome the effect of increasing the money supply
on the economy.
Assume that:
the money supply increased from the equilibrium of AUD 40 billion to AUD 70
billion
Interest was reduced to the interest rate of 1.5% as part of the stimulus package
for the nation to overcome the effects of COVID 19. But the equilibrium interest
rate is 4%
Assume that equilibrium real
Assume that inflation during the COVID crisis was at an
Assume that to overcome the inflationary crisis aggregate demand has to
reduce by AUD 30 billion.
Assume to restore the economy to equilibrium inflation has to be adjusted to
CPI 120
This is the completion of the tutorial
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