~1~

SOLUTION 1
GROUP OF TWENTY or G20
The G20, founded in 1999, is a forum of twenty of the world's largest economies that meet
annually to discuss global trade, health, environment, and other policy issues. Previous
summits discussed the 2008 financial crisis, Iran's nuclear programme and how to respond to
the Syrian civil war.
Together the G20 countries, including Canada, China, India, Japan, Russia, South Africa, the
United Kingdom and the United States, account for about 80 per cent of global economic
growth, nearly 75 percent of all international trade, and around two-thirds of the world's
population.
At the 2009 G20 London Summit, the second meeting of the Heads of Government/State of
the G20, the leaders decided to inject $1.1 billion to boost the global economy struck by the
financial crisis of 2008 that caused the collapse of several leading financial institutions. This
stimulus package came with some benefits as well as some drawbacks.

IMPLICATION OF STIMULUS PACKAGE

1) Reasons/Objectives for implementation in 2009 and 2010 by Obama

President Barack Obama in 2009 signed the American Recovery and Reinvestment
Act (ARRA). This was basically a stimulus package to revive the economy after the
end of Great Depression to increase consumer demand. This was majorly used to
boast the finance sector and growth of economy.

A) Instant relief for families - The act stimulated demand in the economy by injecting
benefits of $260 billion to families. These benefits were provided through tax cuts for
 ~2~

families, additional pay to people receiving income benefits, infusion of money in

Alternate Minimum Tax shelter and finally by increasing the gambit of child tax
credit.

B) Revamping federal structure - infrastructural projects were undertaken by funding

public works projects, this was done to increase employment in the economy. Projects
like transportation and mass transit projects, water projects and modernization of
federal buildings were undertaken.

C) Increase in production of alternative energy - Government pushed for work to be

started in the segment of clean and renewable energy. Initiatives like renewable
energy tax cuts and weatherising the homes was undertaken to this effect.

D) Health care - The Act subsidized the health care costs that were increased due to the
2008 recession crisis. Measures to simplify the flow of medical records was an
important step, it also subsidised healthcare costs for workers, increasing medicaid
funds to help the individual states, modernizing facilities and increasing funds for
National Institute for Health.

E) Improving Educational spending - Spending on education was one of the best ways
to create employment. Policies like increased salaries for teachers, building and
modernizing infrastructure,job training and special education programs for disabled
people, etc. Policies and programs in the education sector alone created 17,687 jobs,
according to a study done by UMass.

F) Push for science and technological developments - The Act consisted of policies
for encouraging scientific research and development of technology. Around $10
billion was spent on funding facilities and jobs in the research domain. Infrastructure
was developed in rural and inter-state areas. Physics and scientific research was also
focused on.

G) Encouraging small businesses - The act worked on supporting the small businesses
though policies of tax cuts, extended credit and loan facilities. This was very
important as these businesses are the backbone of an economy and provide
employment to a lot of individuals. Small businesses had faced major setbacks due to
the recession of 2008 and it was utmost necessary to bring them back on track to
revive the economy.

1) Reasons some Countries were against it in June 2010 G20

 Europe was facing debt crisis issues, where several economies were facing the
problem of huge financial debts, collapsing institutions and rising bond yield of
government securities. This situation led to the leaders’ opposition to injecting more
money as the stimulus into the economy as suggested by Obama.
 ~3~

 China had moved to the position of world no. 2 slot of world economies and Germany
despite of slow growth rate managed to keep unemployment rate several points below
U.S.A
 In 2010, Republicans won Senate elections ending the Democratic hold over the US
Congress. Hence, the timing of the summit was a moment of weakness for President.

OVERALL EMPLOYMENT ANG GDP IMPACT IN 2011

In 2011, the unemployment rate in the United States decreased dramatically. Unemployment
in Spain and South Africa surpassed 20% of the labour force, although it was as far back as
2007 in South Africa, which represents the key reason for the high unemployment rate is the
longer-term structural problems. Even greater concern is the dramatic increase in long-term
unemployment in several countries (defined as unemployment over 12 months). The rate of
long-term unemployment in Spain and USA, where the long-term unemployed share
increased threefold, was the highest in 2011 before the G20 countries were ever so mildly
alleviated, was amongst the G20 countries with the data available. In past recessions, in many
industrialized countries, the increase in long-term unemployment was the key channel,
whereby the cyclical rise in joblessness emerged and became steadily high rates.
Besides the decrease in potential productivity growth resulting from the loss of human
resources, there are also major social costs related to long-term unemployment, as this is
linked to an increased risk of poverty, health issues and school weakness for children.
 ~4~

It is evident that generating more jobs for many G20 countries in 2011 was an important task.
However, several of them faced numerous fundamental problems which for years plagued the
labour market and which were solved only by structural reforms. Production growth prior to
the crisis resulted in a relatively slow growth in formal sector jobs in many, mostly emerging
G20 countries. Other troubling factors include inadequate workforce integration for particular
groups and in some situations, increasing duality between highly protected employees who
are employed by contracts providing low job safety (such as fixed-term or other atypical
contracts) and those in the unprotected informal sector. Many of these factors have weakened
the relationship between economic growth and the quality of jobs. In that respect, G20
leaders endorsed the commitment of Labour and Employment Ministries to step up decent
work and foster successful implementation in accordance with the ILO of Fundamental
Principles and Rights at Work and stressed the key role played by social partners.

SOLUTION 2
a)
As per given data,
Bonds sold by the Republic of Ragu = 50,000 Units
The face value of each bond is = 100 Rags
Therefore, value of the bonds or bonds worth = Rags 50,00,000 or Rags 50 M
Total deficit = Rags 50,00,000 or Rags 50 M
Further,
Assuming the Ragu Central Bank Reserve requirement = 20% (Given)
Bonds brought by the Bank in the open market worth = Rags 5,00,000

Calculating total Debt (Rags) held by the Private Sector = 5,000,000 – 5,00,000
= Rags 45,00,000 or Rags 4.5 M
Considering the Treasury sale as well as the Central Bank Reserve purchase,
Debt outstanding of the Ragu = Rags 45,00,000 or Rags 4.5 M
 ~5~

b)
Since, the treasury’s selling of the bonds will increase the interest rate, which certainly
decreases the spending on the investments which leads to further decrease in the consumer
spending and alongside buyers will be paying for the bonds. It will also decrease the quantity
of goods and services which will be demanded at aggregate price level.
Hence, the economy growth will bring money (Rags 50,00,000) to the Central Reserve bank
and hence it will reduce the money supply.
Therefore, this brings us to the conclusion that the money supply will fall due to the treasury
sale.

c)
As per the question, the Central Bank Reserve = 20% (Given)
And as per the above solution, net amount for open market operations = Rags 4,500,000
Therefore, 20% of 45,00,000 is Rags 9,00,000.
This means the bank will keep Rags 9,00,000 as reserve.
Hence, total amount that can be lend is Total Debt – Amount required by the Central
Bank
Therefore, actual amount to lend is Rags 45,00,000 – Rags 9,00,000 = Rags 36,00,000
This will be a continuous process which will be keep going, in which the bank will keep the
reserve first and then will keep lending the money.
Now to know the amount of money the Central Bank Reserve can generate:
Money multiplier = 1 / RR (Reserve Ratio)
= 1 / (20/100)
OR = 1 / 0.2
OR =5

Hence, the effect on the Central Bank purchase is:

Decrease in the Money Supply = RR * Outstanding Debt

= 5 * 45,00,000 OR 5 * 4.5 M
= Rags 2,25,00,000
 ~6~

SOLUTION 3

Making predictions about movement of asteroids and comets is totally based on past
calculations and repetitive trends. But as far as economic predictions are considered the
factors which are involved in the play are highly mobile in terms of their behaviour.
 Human activity constructs the business model and the economic cycle. It is very
difficult to understand and frame the same beforehand given the fact that it is
completely natural and influenced by a lot of factors in the natural environment.
 Health and well-being of the players involved highly controls the cycle and its flow.
For example - the economy could never predict a pandemic and how COVID 19
affected the whole human race dynamically and therefore the business cycle and
economy in turn.
 A lot of materials which are the backbone of the economy are regenerated on a high
value system can only be estimated by the past trend but its again very hard to predict
the exact availability and regular usage rate.
 There can be a sudden randomness in the economy which can suddenly change the
use and allocation of resources making it again difficult for a sure sought economic
prediction.
 Along with all the factors stated above and, in the diagram, below, data plays a very
important role for economic planning and decision making. The bad quality and
shrewd nature of the data makes the process difficult again.

Even after all the above functionalities, there are some statistics driven series which tend to
move in a certain pattern throughout the business and economic cycle.
Through such trends and series some insights are drawn and movements in the business
economics are predicted.
 ~7~

The assumptions are first, US economy is in recession and second, the mild weather leading
to low demand of energy and reduction in oil prices.
 Due to this the investors have predicted that the situation is a win-win for the firms
since the production costs will reduce.
 Given the fact that the stock market is one of the most vital components of a free
market economy, the companies will now get a change to access the capital when
they’ll give the ownership of the company to the investors through stocks.
 There is a tendency of small money amounts to grow into big ones. This might enable
people to make money and earn profits without even starting a business.
 Due to all this the stock price rise are highly tilted toward expansion in the economy.
Furthermore, the money supply will increase due to which the economic growth will also
accentuate.

Thank You