Suppose that the structural equation for the product market and money market in the Nepalese economy for 2024 were given as follows: C = 200 + 0.75…
BBA Macro Economics · 2024 · Solved Question with Answer
Suppose that the structural equation for the product market and money market in the Nepalese economy for 2024 were given as follows:
C = 200 + 0.75 (Y – T) , T = 80 + 0.2Y , I = 200 – 2,000i, G = Rs 300 million,Mt = 0.5Y, Msp = 100 – 1000i, Ms = Rs 400 million
a) Compute equilibrium output and rate of interest.
b) It is realized that Nepalese economy is trapped in economic recession. In order to remove economic recession, Nepal Rastra Bank has followed expansionary monetary policy and increased money supply by Rs. 200 million. Similarly, Government of Nepal has also implemented expansionary fiscal policy and increased spending by Rs. 200 million. What will be the simultaneous effect on equilibrium output and rate of interest?
c) Do these policy measures help to remove economic recession of Nepal? Give reasons.