1.

The imposition of tax on the purchase of goods will increase the effective price for the buyer. However, it is mentioned that the supply is perfectly inelastic but the demand is relatively elastic. The perfectly inelastic supply means it will not change because of any price change. The relatively elastic demand will respond to any price increase or tax increase by lowering the demanded quantity.

It should be noted that although tax is imposed on purchase of the goods, still the seller will bear maximum share of the tax burden owing to the fact that supply is perfectly inelastic as compared to elastic demand. This will create a dead weight loss and both buyers as well as sellers will be worse off.

2.

Answer to part i.

Cut in stamp duty will definitely motivate people to buy houses because a decrease in stamp duty means that people will be able to buy houses at a cheaper rate.

Immediate effects: people will start buying houses, and the economy will raise a little fur to this. The government will get less stamp duty, but it would be enough to manage expenses in the time of recession.

Future impacts: future impacts of decreasing the stamp duty will not be beneficial for the government. In the long run, when the pandemic is over, and the economy will gradually move out of recession, at that time low stamp duty will not be enough to for government expenditure.

Answer to part ii.

Lowering the company taxes will increase the investment of the companies. And no, it is not debatable because clearly, when companies are required to give fewer taxes to the government, they save more and have more capital to invest in different projects. These investments done by the companies will increase the Gross Domestic Product and will benefit the economy.

Answer to part iii.

I do not agree with the statement that a country with a high level of debt-GDP ratio is poor, and a country with a low level of debt-GDP ratio is rich.

For example, Japan has the highest debt-GDP ratio, which equals to around 234%. Japan has used its borrowed money in the most effective way and is now one of the developed countries in the world. After looking at the real-world example of Japan, we cannot say that a country with high debt-GDP ratio is a poor country. Japan has the most advanced technology and is capable of reducing its unemployment rate year after year.

On the other hand, a country with low debt-to-GDP ratio is definitely rich, for example, Russia has lowest debt-to-GDP ratios and is also positioned in between developed and developing countries and has one of the largest economies in the world.

Therefore, the statement provided is not fully correct.

3.

It shows that the short-run aggregate supply is more than the long-run aggregate supply.
P0 is the existing price level. P1 is the expected price level. P0 less than P1.

b. Lowering interest rates push AD to the right. If the SRAS is the steep already it would push for higher price levels with a lower increase in real GDP, meaning inflation.
If the SRAS is in the sleeping or nearly horizontal position, pushing AD wouldn't cause a rapid increase in inflation and higher pricer levels.

c. Helicopter money means supplying money to the people with no or least strings attached.
Having received this money, people might use it to consume or save it for later purposes.
When they consume, it pushes aggregate demand AD shift to the right. But there isn't any guarantee that the money will be use to consume, So, the AD might remain the same causing for a deeper recession to happen.

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