Question

3. Indicate which ones (one or more options can be true) of the following economic shocks will determine in the medium run an increase in the goods' price and a decrease in the bond's price. [4p] A purchase of bonds by the central bank i. A sale of bonds by the central bank A reduction in taxation by the government ii. iii The approval of a stricter anti-trust law iv. The reduction of unemployment benefits V. (motivate your answer)

Answer 1

First option will cause the money supply to increase rate of interest to decrease price level of goods and services to increase and the price of bonds to increase.

Second option will cause the money supply to decrease rate of interest to increase price level of goods and services to decrease and the price of bonds to decrease

Third option will cause the disposable income to increase consumption to increase price level of goods and services to increase rate of interest to increase and price of bonds to decrease. Select the third option

Fourth option will cause the aggregate production to decline when monopoly practices are reduced aggregate supply to decrease price level of goods and services to increase rate of interest to decline and bond prices to increase

Fifth option will decrease disposable income aggregate demand and reduce the general price level, public saving increases which decreases the rate of interest and increases prices of bonds.

Select option 3.