South Korea's central bank cut its baseinterest rateto a record low on Thursday, adding further stimulus as the coronavirus pandemic threatens to drag growth to its lowest in more than two decades.

The Bank of Korea lowered its benchmark interest rate by 25 basis points to 0.50% after a surprise 50 basis point cut in mid-March.

***100 basis points is equivalent to 1%.***

The pandemic has weighed on Asia's fourth-largest economy by disrupting global supply chains and weakening demand at home and abroad. Korean exports in April fell 25.1% from a year earlier.

The bank said it now expects South Korea's gross domestic product to shrink 0.2% for 2020, compared with its February projection of 2.1% growth.

The projected GDP contraction for this year would be the South Korean economy's worst performance since the 1998 Asian financial crisis.

The bank has also cut its 2020 inflation estimate to 0.3% from 1.0%.

"Economic growth in Korea has slowed considerably. Consumption has remained sluggish, and exports have fallen significantly," the bank said in a statement.

BOK Gov. Lee Ju-yeol said the rate-cut decision was unanimous, but acknowledged uncertainty about the economic outlook, which depends on how the pandemic evolves.

Countries are gradually reopening after months of business lockdowns aimed at containing the pandemic. But anxieties over a possible resurgence in virus cases and escalating U.S.-China tensions are weighing on hopes for a recovery.

Out of 24 economists polled by The Wall Street Journal, 17 had expected the bank to deliver another rate cut on top of its bond-buying program to support the economy.

South Korea's economy shrank 1.4% in the first three months of this year from the previous quarterthe steepest decline since the global financial crisis more than a decade ago.

The government has stepped upfiscal stimulusand a third extra budget for this year is now in the works.

The central bank has ramped up its bond purchases to ease the coronavirus-induced liquidity crunch among businesses. It recently teamed up with the government to set up a temporary special-purpose vehicle to buy even high-risk corporate debt.

Capital Economics economist Alex Holmes said the central bank may be running out of conventional policy tools with the base rate at a historic low.

The bank will probably announce a full program of quantitative easing, where it may commit to regular purchases of government bonds, he said.

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)

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?

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?