Tutorial 3 2021.docx - RHODES UNIVERSITY DEPARTMENT OF...

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RHODES UNIVERSITYDEPARTMENT OF ECONOMICS AND ECONOMIC HISTORYMACROECONOMICS 202Tutorial 3 20201Date: 23rdApril 2021Question 1Imagine that government decides to stimulate domestic consumption by cutting taxes and runs anincreased budget deficit as a result.Assume that: Investment is fairly responsive to changes in interest rates, the Taylor Rule curve ispositively sloped and the economy starts in a position of IS-TR equilibrium.Use an IS-TR diagram with no foreign sector to explain the adjustment to equilibrium in a closedeconomy.Question 2Imagine that the SA Reserve Bank reduces its forecast of future inflation.Assume that: Investment is fairly responsive to changes in interest rates, the Taylor Rule curve ispositively sloped and the economy starts in a position of IS-TR equilibrium.Use an IS-TR diagram with no foreign sector to explain how the Reserve Bank’s reduced forecast of
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Term
Fall
Professor
Sajid
Tags
Inflation, Monetary Policy, United States dollar

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