Answer Happy

Consider two countries, Alpha and Beta, that are identical. The governments of both countries cut taxes by the same amount. The Central Bank of Alpha follows a policy of holding a constant money supply. The Central Bank of Beta follows a policy of holding a constant interest rate. a) Show graphically and explain with the help of the IS-LM model the impact of the tax cut on income and interest rates in the two countries. b) Briefly discuss which one of the two approaches would favour an increase in investments by firms.
The economy of Macroland is initially in long-run equilibrium. A severe drought causes an adverse supply shock. Answer to the points below using the AD-AS framework. a) What happens to prices and output in the short run? b) What would happen to prices and output in the long run if there is no policy accommodation? c) If the Central Bank of Macroland wants to prevent the short-run changes in price and output, what policy action could it take? How would the results of this policy action differ from the prices and output that would result in the long run with no policy action? Attach File
The economy of Macroland is initially in long-run equilibrium. A severe drought causes an adverse supply shock. Answer to the points below using the AD-AS framework. a) What happens to prices and output in the short run? b) What would happen to prices and output in the long run if there is no policy accommodation? c) If the Central Bank of Macroland wants to prevent the short-run changes in price and output, what policy action could it take? How would the results of this policy action differ from the prices and output that would result in the long run with no policy action? Attach File