Q1. Assume that in country-A Central Bank cares just about keeping the price level stable and in country-B, its central bank cares just about keeping output and employment at their natural rates. Describe how in the two countries, their central bank would respond to:
a) An exogenous raise in the velocity of money.
b) An exogenous raise in the price of oil.
Q2. Describe the effect of an increase in desire to save the saving and income in the Keynesian model.
Q3. Describe the output adjustment method in a Simple Keynesian Model. In this context illustrate the justification of the supposition that MPC is less than one.
Q4. By using the Simple Keynesian Model, describe the effect of the given:
a) A raise in government expenditure.
b) A reduction in the lump sum taxes.
In this context compare the government expenses multiplier with tax multiplier.