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This year the government of Bangladesh has introduced a fiscal stimulus package that significantly increases public...

This year the government of Bangladesh has introduced a fiscal stimulus package that significantly increases public expenditure. Because the government has problems borrowing in domestic and international credit markets these days, it asks the Central Bank of Bangladesh to print money and buy government bonds, so that the government will have sufficient money to spend. Assume that the exchange rate is flexible and that the interest parity condition holds. Also, assume that the price level is exogenously determined and the conditions in the rest of the world remain unchanged. Finally, assume that the government's policy is viewed as temporary and has no impact on the course of the economy beyond the current year. How would this policy affect the levels of private consumption and investment in Bangladesh this year?

a. Private consumption and investment will both rise.

b. Private consumption and investment will both decline.

c. Private consumption will rise and investment will decline.

d. Private consumption will rise, but investment may rise or decline.

e. Private consumption will remain unchanged, while investment will rise.

f. Private consumption will decline, while investment remains unchanged.

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Answer #1

As we know that coronavirus has impacted each and every country of the world. The COVID-19 was first observed in the Wuhan city of China in 1 December 2019. The coronavirus has it's presence in 189 countries and territories of the world. The WHO has declared COVID-19 as pandemic on 11 March 2019. The COVID-19 is related with SARS-CoV-2 virus.

Bangladesh was also impacted by COVID-19. The virus was confirmed to have spread to Bangladesh in March 2020. The first three known cases were reported on 8 March 2020 by the country's epidemiology institute, IEDCR.Infections remained low until the end of March but saw a steep rise in April.In the week ending on 11 April, new cases in Bangladesh grew by 1,155 percent, the highest in Asia, ahead of Indonesia, with 186 percent. As of 22 June 2020, there have been a total of 115,786 confirmed cases in the country, with 46,755 recoveries and 1,502 deaths.The capital city of Dhaka is currently the most affected district.

On 5th April the Bangladesh PM Sheikh Hasina announced stimulus packages to the tune of Taka 72,750 crore (USD 8,573 million) to counter the adverse effects of coronavirus on the country’s economy.

The correct option is (d).

Private consumption will rise, but investment may rise or decline.

Hope you got the answer.

Kindly comment for further explanation.

Thanks ?

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