Question: (i) Analyze the effects of a reduction in the nominal money stock on the price level, on output, and on the real money stock

(i) Analyze the effects of a reduction in the nominal money stock

(i) Analyze the effects of a reduction in the nominal money stock on the price level, on output, and on the real money stock when the aggregate supply curve is positively sloped and wages adjust slowly over time. 4mks (ii) It is sometimes said that a central bank is a necessary element for a balance-of-payments deficit. What is the explanation for this argument? 4mks (iii) Why do we call a mechanism such as proportional income taxes automatic stabilizers? Explain proportional income taxes effect on output fluctuations. 3mks (iv) Describe a situation that could produce stagflation in an economy. 4mk S

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