Which policy should the government of togo choose

Assignment Help Microeconomics

Reference no: EM13950416

In the economy of Togo, the price level is exogenously determined. As a consequence, theeconomy is well represented by an IS-LM model. The economy is currently in equilibrium atpoint A with output level Y0 and interest rate r0.The government of Togo has identified output level Y0 to be preferred to all other levels ofoutput. It knows, however, that exogenous shocks to the Togo economy will cause output tovary from output level Y0 from time to time.The central bank of Togo has announced it will always maintain a fixed money supply. That is,the money supply is exogenously determined while the interest rate is endogenously determined.The government, in charge of setting taxes (T) and levels of government spending (G), is tryingto decide between one of two policy options. Option A is to set G and T exogenously and allowthe interest rate (r) to vary endogenously.

Option B is to allow G and T to be determinedendogenously so as to hold the value of the interest rate constant. Which policy should thegovernment of Togo choose?To answer this question, first assume that Togo is struck by exogenous shocks to money demandthat cause the LM curve to sometimes be to the right, and sometimes be to the left, of theposition shown in the diagram. Which policy option is preferred?Now assume that Togo is struck by exogenous shocks to investment that cause the IS curve tosometimes be to the right, and sometimes be to the left, of the position shown in the diagram.(There are no shocks to the position of LM.) Which policy option is preferred in this case?

Reference no: EM13950416

Questions Cloud

Reasons for discrepancies and ssible mechanisms : Discuss both the reasons for these discrepancies and ssible mechanisms by which such pollutants are formed in an actual engine. In a memorandum, summarize your findings and conclusions.

Determine the functional dependencies : After determining the functional dependencies, convert this table to an equivalent collection of tables that are in third normal form.

The u s continue on the path to bring liberty and freedom : Due to our financial issues and social strains, is it prudent for the U.S. to continue with a policy of intervention with countries that are not a threat to us or should the U.S. continue on the path to bring liberty and freedom to all corners of the..

Maximum number of homogeneous phases : 1. What is the maximum number of homogeneous phases that can exist at equilibrium for a system involving

Which policy should the government of togo choose : Option B is to allow G and T to be determinedendogenously so as to hold the value of the interest rate constant. Which policy should thegovernment of Togo choose?To answer this question, first assume that Togo is struck by exogenous shocks to mone..

Describe a practical application or technology : In order from the longest to the shortest wavelength, list component wavelengths of the electromagnetic spectrum. For each type of radiation, be sure to provide its name, wavelength range, and frequency range. Describe a practical application or te..

Determining the conditions for equilibrium : An isolated system has two phases, denoted by A and B, each of which consists of the same two substances, denoted by 1 and 2. Show that necessary conditions for equilibrium are

Derive an expression for average total cost : Derive an expression for average total cost (ATC). At what quantity is ATC at its minimum (at what ATC level)? In your diagram, sketch ATC and confirm that it is U-shaped. [Hint: Calculate ATC when and.

Determining the isothermal compressibility : Derive an expression for estimating the pressure at which graphite and diamond exist in equilibrium at 25°C in terms of the specific volume, specific Gibbs function, and isothermal compressibility of each phase at 25°C, 1 atm. Discuss.

User Account

All Pages