Sanford Medical Center Recession in The Global Economy Question Answer the attached simple question. It should be a detailed paragraph explanation for each

Sanford Medical Center Recession in The Global Economy Question Answer the attached simple question. It should be a detailed paragraph explanation for each question. 2 pages minimum Part 1: Short answer questions
1) Suppose that in response to COVID-19, some businesses have cancelled their investment plans. Assuming
that aggregate output is demand-determined, what effect will this have, all other things equal, on the AE
function and equilibrium national income?
Will the AE function shift down or up and why? Will
equilibrium national income rise or fall, and why?
Answer:
2) Suppose again that COVID-19 is contributing to fears of a recession in the global economy. Consider the
following news headline: “The foreign recession will hurt Canadian exporters.” Assuming that aggregate
output is demand-determined, what effect will this have, all other things equal, on the AE function and
equilibrium national income? Will the AE function shift down or up and why? Will equilibrium national
income rise or fall, and why?
Answer:
3) The unemployment rate in Canada in February was 5.6 percent, from 5.5 percent in January. Some have
argued that reported unemployment rates are likely to be an understatement of the amount of “true”
unemployment in an economy. What is the main weakness of the unemployment rate?
Answer:
.
4) Some economists have criticized using GDP as a measure of the economic well-being of a country because
it ignores non-market and other activities. However, it remains useful. Why?
Answer:
5) Explain, in detail, how the adjustment to macroeconomic equilibrium occurs when spending (AE) is less
than production (Y). Be sure to discuss how inventories play a crucial role in the adjustment process. State
what happens to real GDP, employment, and unemployment during the adjustment process.
Answer:
6) Explain why the unemployment rate is never zero
Answer:
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7) On March 27th, 2020, The Bank of Canada decreased its target for the overnight interest rate to 0.25 percent
“to provide support to the Canadian financial system and the economy during the COVID-19 pandemic.” (
https://www.bankofcanada.ca/2020/03/press-release-2020-03-27/) The decrease in interest rates is an
example of expansionary monetary policy. Describe what will happen to the following variables relative to
what would have happened without the policy. Will they increase or decrease, or, rise or fall?
i.
The money supply
ii.
Interest rates
iii.
Investment
iv.
Consumption
v.
Net Exports
Answer:
8) Again, on March 27th, 2020, The Bank of Canada decreased its target for the overnight interest rate to 0.25
percent “to provide support to the Canadian financial system and the economy during the COVID-19
pandemic.” ( https://www.bankofcanada.ca/2020/03/press-release-2020-03-27/) The decrease in interest
rates is an example of expansionary monetary policy. Assume a closed economy.
A. In three steps, describe the channels, the monetary transmission mechanism, through which this change in
policy leads to a shift of the aggregate demand curve (Hint: use AD-AS model)
Answer:
B. Explain what happens to aggregate demand, real GDP, and the price level?
Answer:
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Part 2:
(10 marks) The table below shows hypothetical alternative economies and suitable values for the marginal
propensity to consume out of disposable income (MPC), the net tax rate (t) and the marginal propensity to import
(m). Complete the table by calculating the marginal propensity to consume out of national income z, and the simple
multiplier, given that z = MPC(1–t) – m
Economy
MPC
t
m
A
0.75
0.20
0.15
B
0.75
0.20
0.30
C
0.75
0.40
0.30
D
0.90
0.40
0.30
z
Simple
multiplier
Answer:
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