Question

Macroeconomic Questions

Answer in Details*

Below is the graph from Tradingeconomics on the unemployment rate in Russia: Jan 2020 Now, if Russia wants to control inflation, your task is to: 1. Define the phase of the business cycle that Russia is going through. 2. To choose and discuss appropriate monetary policy. 3. Draw the graph showing original situation in the economy and then fixed condition

Answer 1

1 - As it is visible from the graph that the rate of unemployment in Russia is rising. The rise in the unemployment happens during the phase of recession. Hence Russia is in the contraction phase of business cycle where the AD is low and thus creating the recessionary gap.

2 - Expansionary monetary policies such as the decrease in reserve requirement , decline in discount rates and open market purchase will help the econony to come out of this phase by increase the money supply in economy and thus expanding the consumption and investment. The output will rise and unemployment will fall. This will help to bring the economy out of recession.

3 - The initial AD will represent the economy in the recessionary phase. The line AD1 , which has been dotted is showing the AS after the corrective measures have been taken and the recessionary gap has been closed down.

AD has increased from AD to AD 1 , thus reaching the macro economic equilibrium and the potential level. The real GDP and price level have also increased.

GLRAS bo sri sloued to stol اكمال اد PRICE LEVEL E نلی \ 00 R ر . . APOC ہ AD x Real GDP