Please write a thought provoking response to this student's submission for the assignment:

Question 1: Per the article, theinterest ratewas decreased by South Korea's central bank. Refer back to the lessons from Monetary Policy and Keynesian Short Run Policy Model. Was this interest rate cut due to the economy experiencing a recessionary gap or an inflationary gap? (Only choose one: RECESSIONARY GAP or INFLATIONARY GAP)

The interest rate cut was due to the inflationary gap experiencing by South Korea's economy.

Inflationary gap highlights when the output gap is positive that is, when real GDP exceeds potential, the economy is operating above its sustainable capacity and is likely to inflate. In the case of South Koreas exporting goods and services has greatly affected, and it fell due to lockdown implementation in both other countries where the products and services to be exported where prohibited. So as a result output gap is unfavorable that GDP falls far short of potential. Thus, there is acomparative rise in real GDP that triggers an economy's consumption to rise, causing prices to go up in the long run. Since an inflationary gap implies also that because the economy cannot produce enough products and services to accumulate in terms of importing products and services from other countries then this level of aggregate expenditures, the spending will instead result in an inflationary increase in the price level. Then, further covid-19 outbreaks threaten to disrupt the global trade recovery by the Korean economy, casting a gloom over the perspective in the long run.

Question 2:This question is regarding the effect of TAXES on the aggregate economy. The article above referred to government providing more fiscal stimulus. Fiscal policy has 2 tools. One tool is taxes. The other tool is government spending. Given the economic state of Korea, as stated in the article, and the need formorefiscal stimulus, what should the government do with TAXES to providemorefiscal stimulus? (choose one: INCREASE TAXES or DECREASE TAXES) and Why?

Since taxes played an important role in a state specifically in the South Korean economy the government must implement an increase in taxes because it can help to reduce an inflationary gap. By means of implementing high taxes, this method required for inflation control when rising prices are high, as well as a basic method that reduces available to spend funds, thus striking directly at causes, and encourages borrowed funds to government by indicating the government's serious intention to control inflation, then if applied on a growing level that the spending public believes will result in inflation control. Then, Specifically, their impact on demand, higher taxes boost demand by improving economic conditions and by encouraging businesses to hire and invest more. Tax increases have the opposite effect. that these demand effects can be significant when the economy is weak, but they are much smaller when it is close to capacity.

Question 3: This question is regarding the effect of GOVERNMENT SPENDING on the aggregate economy. The article above referred to government providingmorefiscal stimulus. Fiscal policy has 2 tools. One tool is taxes. The other tool is government spending. Given the economic state of Korea, as stated in the article, and the need formorefiscal stimulus, what should the government do with GOVERNMENT SPENDING to providemorefiscal stimulus? (choose one: INCREASE GOVERNMENT SPENDING or DECREASE GOVERNMENT SPENDING) and Why?

A government may decide to have a decrease in government spending where fiscal policy help to reduce an inflationary gap, often by reducing the amount of money circulating in the economy. This can be accomplished by reducing government spending, raising taxes, issuing bonds and securities, and reducing transfer payments. Evidently, the South Korean government intended to purchase a bond that when aSouth Korean Central bank buys bonds, money that flows from the central bank to individual banks in the economy, promoting economic growth in circulation. When a central bank sells bonds, then money from individual banks in the economy is flowing into the reserve bank the quantity of money in the economy. in addition, long-term interest rates are being lowered in order to stimulate investment and other methods of spending. Thus, these changes in the fiscal state of the economy can help to restore economic equilibrium. As the amount of money in circulation decreases, so does the overall price of goods and services, resulting in lower inflation.