Question

1.b. Fiscal policy is said to suffer from ‘crowding out’. Explain what this means and why it is a problem. Should the Federal budget always be balanced?

2. a. Describe the main goals of monetary policy and explain how a change in interest rates can affect the different categories of aggregate demand. (5 marks)

b. You are the Reserve Bank Governor and are reviewing the following economic data:

Real GDP growth rate: 4.2%

Unemployment rate: 4.6%

Inflation rate: 3.8%

Determine what phase of the business cycle the economy is likely to be experiencing. Provide reasons for your answer. Use the AD/AS model to show the position of this economy and whether the Reserve Bank should use expansionary or contractionary monetary policy to restore the economy to long run equilibrium.

3. For each of the following scenarios explain the type of market failure, explain why the market fails and discuss how the government could resolve the market failure:

a. Carbon dioxide emissions from the use of fossil fuels contributes to global warming.

b. Many fish species have disappeared from Australian waters.

c. A university education generates additional benefits that are not captured by the student receiving the education.

d. Most used cars offered for sale are ‘lemons’ (low quality cars).

Answer 1

These 3 questions are totally different. They are not the sub-part of each other. So, i can solve one of them. Here, the answer of first question i.e (1.b.)