The UAE economy experienced a sort of recession just prior to the current crisis because of the decline in oil prices an

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The Uae Economy Experienced A Sort Of Recession Just Prior To The Current Crisis Because Of The Decline In Oil Prices An 1 (375.48 KiB) Viewed 42 times

The UAE economy experienced a sort of recession just prior to the current crisis because of the decline in oil prices and 5% value-added taxes imposed on goods and services. The protective measures have deepened the decline in aggregate output especially in aviation, tourism, hotels, and most importantly construction companies. Because of the decline in both aggregate output and aggregate demand, the unemployment rate has risen to an extreme level that we needed to depart thousands of unemployed to their home country. The recession is globally estimated to be around 20% to 25% a decline in Gross Domestic Product (GDP) that is close to the Great Depression during the 1930s. The UAE government has immediately adjusted the monetary and fiscal policies in order to rescue the economy from a further decline. As the health situation and normalization have started to be more relax and businesses have returned to their somehow normal work, the debate on monetary and fiscal policies should be continued in order to achieve an economic recovery. Fiscal policy is one of two important policies that the UAE government can use in order to mitigate the drop in national output. The government in this case can use an expansionary fiscal policy by either increasing government spending and/or decreasing the level of taxes in order to avoid a drop in aggregate demand that would lead to a decrease in economic growth. By spending more, the government could lead, through a multiplier effect, an increase in aggregate demand, hence mitigating the negative impact of COVID 19. During the current pandemic, The UAE government first continues to finance its infrastructure and public services; second, it expands its expenditure on the health sector to control disease prevention; third, it supports companies in trouble. For instance, the government of Dubai announced to support Emirates Airline and the disinfection of the whole city. The Ministry of Economy has announced a new list of service fees, reflecting a reduction across 94 of its offered services, particularly provided by the Ministry to the public covering individuals, companies, and the business sector. Suppose aggregate consumption function is specified as C = $2000+ 0.75Ys of the UAE economy in 2021, Given that C stands for aggregate consumption and Ye stands for disposable personal income. Answer the following question: A. Calculate a change in the equilibrium level of aggregate output if government spending is increased by Dhs100 million. B. Estimate a change in the equilibrium level of aggregate output if net taxes are decreased by Dhs100 million. C. Predict a change in the equilibrium level of aggregate output if government spending is increased by Dhs 100 million and net taxes are increased by Dhs100 million simultaneously. D. Forecast a change in the equilibrium level of aggregate output if government spending is increased by Dhs 100 million and net taxes are decreased by Dhs100 million simultaneously. E. Which scenario (A, B, C, or D) is most effective to tackle the recession caused by Covid-19 in the UAE? Analyze your choice.