The Global Economy : Assignment
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Added on 2021-06-17
The Global Economy : Assignment
Added on 2021-06-17
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Running Head: THE GLOBAL ECONOMYThe Global EconomyName of the StudentName of the UniversityCourse ID
THE GLOBAL ECONOMY1Table of ContentsPart B...............................................................................................................................................2Answer 4......................................................................................................................................2Answer 5......................................................................................................................................3Evaluation of investment in the long run.....................................................................................3Evaluation of investment in the short run....................................................................................5Policy recommendation for central bank.....................................................................................6Part C...............................................................................................................................................7Introduction..................................................................................................................................7Accountant: Roles and Skills.......................................................................................................7Appropriateness of the job in accordance to my skills................................................................8Interpretation of Video................................................................................................................9Action Plan..................................................................................................................................9References......................................................................................................................................10
THE GLOBAL ECONOMY2Part BAnswer 4Cutting tax rate is an instrument government’s expansionary fiscal policy. Duringrecession the economy experiences a decline in output, employment, price level and othernecessary variables. Government through fiscal or monetary policy instrument aims to stimulateoutput and other important variables (Mankiw 2014). The effect of a cut in tax can be understoodusing the aggregate expenditure model. Figure 1: Effect of a tax cut on real GDP(Source: as created by Author)
THE GLOBAL ECONOMY3The figure above shows determination of real GDP in the aggregate expenditure model. AE1curve shows the aggregate expenditure which is sum of all the planned expenditure. The 450line, passing through the origin is the locus of all the points where aggregate spending equals realGDP. The intersection of these two line determine equilibrium level of real GDP. M is the stableequilibrium with stable output of Ye. A decrease is tax has a positive influence on aggregateexpenditure and hence, shifts the aggregate expenditure curve upward (Johnson 2017). Theaggregate expenditure however cannot shift to the full extent of tax cut. It is discounted by thefraction of marginal propensity to consume. The AE curve thus shifts by less than $20 billionleading to an output expansion to Y1.Given that marginal propensity to save is 0.2. The marginal propensity to consume is thusobtained as (1 – MPC) = (1 – 0.2) = 0.8.Therefore, a $20 billion cut in tax shifts the aggregate expenditure curve leftward by (0.8* $20billion) = $16 billion.From the multiplier effect, real GDP would then increase by (MPC/MPS) *$20 billion = (0.8/0.2) * $20 billion = $80 billion. Answer 5Evaluation of investment in the long run
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