1. Explain the two key tools of monetary policy, and describe how they would be used by the Bank of Canada to implement a contradictory monetary policy.
2. The economy of Kenya is in recession, and the recessionary gap is large. The World Bank hires you as its economist and asks you to explain the argument that lower corporate tax rates can increase tax revenue in Kenya. Consider the Laffer curve in your explanation.
3. Explain the concept of the multiplier, and explain the role of the marginal propensity to save (MPS) in determining the size of the multiplier.
- Explain how the size of the multiplier will change when one brings in the role of the marginal tax rate.
- Using the concepts in parts a and b above, calculate the slope of the AE curve and the size of the multiplier if MPS = 0.20. Then, calculate the revised slope of the AE curve and the multiplier when you know that the imports and the marginal tax rate will reduce the slope of the AE curve by another 0.25.
4. Describe an export subsidy, and explain the gains and losses that might arise from such practice.
- Why are developing countries in Africa especially affected by export subsidies in industrial countries?