Question

Pleased read carefully I need solutions of questions 3 and 4.

1. 1151 The graphic below shows actual inflation (this is labeled "headline inflation" in the chart) and inflation targets for a number of countries in 2014 Australia Using only information in the chart and frameworks developed in this class (i.e., not subsequent events), please answer the following questions: a. [5 points] At the time of the chart, which monetary policy would you have recommended for Sweden? Please explain in 1 b. [5 points] At the time of the chart, which monctary policy would you have recommended for Brazil? Please explain in 1-2 c. [5 points] If both Japan and China were to achieve their inflation targets, what do you expect would happen to the value of the Japanese Yen relative to the Chinese RMB in the long run? Please select one and explain in 1-2 sentences. The Yen will appreciate The Yen will depreciate 2. 120] A recent issue of the Economist magazine reports that Brazil has a fiscal budget deficit of 7% of GDP. The current account deficit is 1% of GDP. The current inflation rate in Brazil is 4% (about the inflation target). The current unemployment rate in Brazil is 11.6%, which is higher than the long rn average. The Brazilian government is attempting to reduce the fiscal budget deficit. a. [5 points] If the Brazilian fiscal authorities are successful in reducing the budget deficit, what would you expect to happen to GDP growth in the short run in Brazil? Please select one response and explain in 1-2 sentences. Increase No change

Answer 1

Question 2)

a) decrease

GDP = C+ I + G + X- M

Reduction in budget deficit would mean aggregate expenditure in the economy would fall which would cause the GDP to fall.

Decrease in government expenditure would generate the multiplier effect in opposite direction causing the GDP to fall .

b) Increase

Reduction in budget deficit would mean that GDP(output ) has fallen . Reduced output means fewer workers will be required so unemployment rate in the economy would increase .

c)Decrease

Reduced GDP because of reduction in budget deficit means that aggregate income in. the economy has fallen so current account deficit will also fall as imports will fall as income fall .

d) Increase the money supply

Since in United States , the inflation < headline inflation , so US Fed would increase the money supply to cause the inflation to increase .So if Brazilian bank follows United States so money supply will increase .