Reference no: EM132248497

PROBLEM

Using the 2017 GDP data from assignment 1, determine the following assuming that the MPS is 0.3, the marginal tax rate is 0.05, autonomous taxes are $200,560.4 million and nx(m) is 0.04.

Furthermore, assume that 'Gross Fixed Capital Formation' represents planned investment while 'changes in inventories' represents unplanned investment..

Part (a) Calculate actual GDP for 2017 (solve to one decimal point).

Part (b) Calculate autonomous consumption (solve to one decimal point).

Part (c) Calculate autonomous imports (solve to one decimal point).

Part (d) Calculate autonomous net exports (solve to one decimal point).

Part (e) Calculate the expenditure and tax multipliers for the economy (solve to two decimal points).

Part (f) Calculate equilibrium GDP for 2017 (solve to one decimal point).

Part (g) If the government wants to close the GDP gap, calculate the change in spending (specify whether an increase or decrease) that would have to be undertaken (solve to one decimal point).

Part (h) If the central bank moves to close the GDP gap instead of the government, illustrate the effect of the policy action on the economy using both the AD-AS model and the IS-LM model. (Ensure you clearly display the original equilibrium position on each diagram as A and the new equilibrium position as B after the policy action).

As a result of the policy action, what will be the impact on:
1. economic activity
2. the unemployment rate
3. the price level
4. interest rates

Part (i) Briefly explain the potential benefits of using monetary policy rather than fiscal policy to stabilise the economy (200 word limit).

Part (j) Imagine that the trade war between the US and China escalates, and spreads to other nations, including Singapore. Discuss the potential costs and benefits for the Singapore economy (200 word limit).