Q-1.You are the new Governor of State Bank of Pakistan after Reza Baqir.For each of the situations listed below, decide if you would use Easy-Monetary policy or Tight-Monetary policy. Explain each scenario within

Scenarios:

Q-1. (A).RGDP dropped from 3 percent to 1 percent in the last year.

Answer:

Q-1. (B).The CPI and GDP deflator have risen 3 percent in the last six months.

Answer:

Q-1. (C).Commercial interest rates are rising, but the SBP has not raised rates.

Answer:

Q-1. (D).RGDP is growing steadily, and prices are rising sharply.

Answer:

Q-1. (E).The Pakistan is experiencing both high inflation and high unemployment.

Answer:

Q-1. (F).We are in a recession.Factory orders are down, and the economy appears to be slumping.

Answer:

Q-1. (G).Unemployment is low and prices are rising steadily.

Answer:

Q-1. (H).Unemployment rates are pushing 11 percent while the CPI has fallen from 8 percent to 2 percent growth.

Answer:

Q-1. (I).We are in a recession but are experiencing high inflation.

Answer:

Q-1. (J).The money supply appears to be tight, and prices are on the rise.

Answer:

(10Marks)

Q-2. (A).You are given the following information.

SavingsS = 150

InvestmentI = 100

TaxesT = 250

Government PurchasesG = 500

Compute the level of private savings, public savings, and national savings.

Answer:

(2.5 Marks)

Q-2. (B).The labor force in Pakistan is 15,000,000 and the number of employed is 12,000,000. Calculate the number of unemployed and the unemployment rate. Also discuss it in few lines by comparing it with NRU (natural rate of unemployment 5%).

Answer:

(2.5 Marks)

Q-3. (A).I deposited Rs. 3 million of my money in a Habib Bank Limited, State Bank of Pakistan: Required rate of reserve ratio (RRR): Weekly Average Demand Liability was set as 10.0 % in June 2020. You are required to calculate the change in the money supply in the economy. If RRR decreased to 5% in August 2020, what will happen with the same deposit of Rs. 3 million. You are also required to compare and discuss it in few lines.

Answer:

(2.5 Marks)

Q-3. (B).Evaluate the policy options open to a government when the Government wants to close a deflationary gap (negative output gap) and reduce unemployment

Answer:

(2.5 Marks)

Q-4.Click the link: https://www.theguardian.com/world/2008/feb/25/china.globaleconomy

Read the article"Families feel pinch as inflation threatens economic miracle"and then answer the questions below.

Q-4.(A)Using aggregate demand and supply diagrams, evaluate the extent to which the inflation taking place in China is of a cost-push nature.

Answer:

(2.5 Marks)

Q-4.(B)Explain the main policies that the Chinese government has been adopting to try to reduce the level of inflation.

Answer:

(2.5 Marks)

Q-5Draw the impact on the AS/AD model for each scenario below. Determine the impact on Real GDP, price level, unemployment, and the business cycle. First fill the table and then explain each scenario in few lines.

Use the following terminologies:1) Real GDP:Increaseordecrease

2) Price Level:Increaseordecrease

3) Unemployment:Increaseordecrease

4) Business Cycle:ExpansionorContraction

Use the following lines to show shifting in AD or AS, just drag it to right place and then compare the new equilibrium with the previous one.

TABLE:Just insert the arrows and lines to fill this table.

Scenario

Graph It!

Real

GDP

Price

Level

Unemployment

Business Cycle

1. Ministry of Finance passes a tax cut for the middle class and the P.M Imran Khan signs it.

1. Imports into the Pakistan begin to decline while exports out of the Pakistan rise.

1. Productions costs rise significantly in many sectors of the economy.

1. FBR raises taxes on corporations.

1. People feel confident (Tabdeli) about the future of the economy (Consumer confidence).

"Explanations"

Scenarios

Explanations (max. for each)

1. Ministry of Finance passes a tax cut for the middle class and the P.M Imran Khan signs it.

1. Imports into the Pakistan begin to decline while exports out of the Pakistan rise.

1. Productions costs rise significantly in many sectors of the economy.

1. FBR raises taxes on corporations.

1. People feel confident (Tabdeli) about the future of the economy (Consumer confidence).

(5 Marks)