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1)The Loans Market Assume (i) consumption is an increasing function disposable income and a decreasing function of the real interest rate, (ii) investment is a decreasing function of the interest rate

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1)The Loans Market Assume (i) consumption is an increasing function disposable income and a decreasing function of the real interest rate, (ii) investment is a decreasing function of the interest rate. So C = C(Y-T,r), 0

2) Suppose Thai inflation rate is too high and the Bank of Thailand (BOT) decides to reduce inflation (a.k.a. disinflation). (a) What is the broad type of monetary policy that the BOT needs to implement? (b) How should the BOT change (i) reserve requirement (ii) BIBOR (iii) open-market operations (OMOs) (c) Use the short-run and long-run Phillips curve (SRPC and LRPC) to show the short-run and long-run effects of this policy. (Remark: make sure to explicitly show the resulting change in inflation rate (Tt) and unemployment rate.) Phillips Curve (d) Certainly, every action involves costs, what is the cost of disinflation here? Based on the theory of rational expectations, how might the BOT reduce such short-run costs?

3)What are the factors that determine the magnitude of the cost of disinflation? How could the policymakers can reduce the cost of disinflation?