Answer Happy

ONLY ANSWER PART C AND NOTHING ELSE - I KNOW YOU ARE
ONLY ALLOWED TO ANSWER ONE QUESTION. FULL QUESTION WAS POSTED TO
GIVE YOU CONTEXT.
Note: i) Y is real domestic output; ii) E is the exchange rate
in domestic currency/foreign currency terms, iii) if a government
maintains a balanced budget, this implies that total government
expenditure 𝐺 is financed from government
taxes 𝑇. 𝐺 > 𝑇 implies there is a government
budget deficit.
a) Assume that a country X has a law that requires its
government to always maintain a balanced budget. Does this law
imply that X can no longer use a temporary increase in government
spending to increase aggregate output in the short-run?
b) What is the effect of a permanent increase in
government spending on aggregate output in the short-run (for
country X)? Explain with the help of a figure.
For parts c and d, assume that there is no law that requires the
government to always maintain a balanced budget. Assume further
that the government cuts taxes temporarily which leads to a budget
deficit.
c) What is the overall effect on Y and E in the short-run if
people expect the government to finance its budget deficit by
printing extra money in the future? Explain with the help of a
figure. Note: printing extra money can be understood as a permanent
monetary expansion.
d) Relative to part c), compare the effect on Y and E in the
short-run if there is only a temporary decrease in taxes without
the expectation that the government will monetize the debt in the
future? Note: assume that the budget deficit is financed through
some initial government wealth.