- Section C 30 Marks Please Answer Either Question C1 Or C2 C1 In A Country With A Small Open Economy Government Has 1 (65.5 KiB) Viewed 37 times
Section C (30 marks). Please answer either question C1 or C2. C1. In a country with a small open economy, government has ordered a mass domestic introduction of fully automatic retail and teller machines in all shops/supermarkets for consumers to reduce human contact during pandemic. All displaced shop assistances and cashiers have received 6-month wages and free retraining programs supported by the government and get employment in other sectors. Imagine that the cost of such technology has been reduced considerably, while quality is improved. (1) Using 3-equation macroeconomic model for Open economy with labour market, draw a relevant diagram and explain the likely possible effects of these automation technology and the government measures on the key macroeconomic indicators. Clearly state your assumptions and explain any shifts in your diagram (10 points). Explain your economic arguments, and identify likely short-term macroeconomic impacts of this mass automation technology and government measures on: (a) the labour market equilibrium (3 points), (b) private investment (3 points), (c) real exchange rate (3 points). (d) output (3 points) (e) inflation (3 points). (iii) What are likely responses by the Central Bank to these changes? Discuss how the central bank and the treasury (ministry of finance) could respond by adjusting monetary and/or fiscal policies when facing such mass automation challenge (5 points).