Open economy macroeconomics, What is discretionary fiscal impulse?

Economics

Section A (40 Marks). Please answer all 1i-iv questions in this
section. 
1i) What is discretionary fiscal impulse? – (5 marks)
ii) Assuming the UK economy taxes and government spending at
equilibrium level of output for 2021 is each £10 trillion, use the cyclically
adjusted budget deficit formula [𝑮(𝒚𝒆)−𝑻(𝒚𝒆)≡[𝑮(𝒚𝒕)−𝑻(𝒚𝒕)]−𝜶(𝒚𝒆−𝒚𝒕)]
to work out questions ‘a to d’ below. (Hint: TT = taxes net of transfers;
and alpha (𝜶) = 1; consumption and investment are assumed
unchanged):
(a) Derive and explain the kind of budget implemented by the UK
government and by how much if actual output generated is £18.0 trillion
(show all workings) – (10 marks)
(b) Derive and explain the kind of budget implemented by the UK
government and by how much if actual output generated is £6.0trillion
(show all workings) – (10 marks)
(iii) Using the debt dynamics equation: 𝜟𝒃 = 𝒅 + (𝒓−𝜸𝒚)𝒃, discuss three
options available to the government to balance the ‘question ‘b(ii)’
economy: (12 marks; i.e., 4 marks each)
(iv) what is the least painful option in the answer you gave for question
‘c’, and why? – (3 marks)

Section B (30 Marks)  
B (i) Following exit from the EU single market, assuming the UK decides
to trade only among the four nations (i.e., without rest of the world). How
will the shocks listed in ‘a-e’ below affect the UK’s (i.1) equilibrium level
of output, (i.2) unemployment, (i.3) the IS curve and (i.4) the exchange
rate (XR) curve
(a) stock market boom (4 marks)
(b) a fall in the retirement age (4 marks)
(c) a decrease in depreciation rate (4 marks)
(d) a natural disaster that wipes-off stock of capital (4 marks)
(e) an increase in the rate of technological progress (4 marks)
(ii) If we relax earlier assumption, and now assume that the UK is a small
open economy, demonstrate using the 3-equation model the adjustment
to equilibrium of a permanent shock to aggregate demand (10 marks)
Section C (30 marks). Please answer either question C1 or C2.
C1. In a country with a small open economy, government has ordered a
mass domestic introduction of fully automatic retail and teller machines
in all shops/supermarkets for consumers to reduce human contact
during pandemic. All displaced shop assistances and cashiers have
received 6-month wages and free retraining programs supported by the
government and get employment in other sectors. Imagine that the cost
of such technology has been reduced considerably, while quality is
improved.
i.Using 3-equation macroeconomic model for Open economy with labour
market, draw a relevant diagram and explain the likely possible effects of
these automation technology and the government measures on the key
macroeconomic indicators. Clearly state your assumptions and explain
any shifts in your diagram (10 points).
ii.Explain your economic arguments, and identify likely short-term
macroeconomic impacts of this mass automation technology and
government measures on:
(a) the labour market equilibrium (3 points),
(b) private investment (3 points),
(c) real exchange rate (3 points),
(d) output (3 points)
(e) inflation (3 points).

(iii) What are likely responses by the Central Bank to these changes?
Discuss how the central bank and the treasury (ministry of finance) could
respond by adjusting monetary and/or fiscal policies when facing such
mass automation challenge (5 points).
C2(i). What does the term ‘creative destruction’ mean? In a
Schumpeterian growth model, what determines the growth rate of
productivity? How does this compare to the mechanism driving growth in
the Solow model with technological progress? (18 marks)
C2(ii). For each question, identify the statement as True or False. You
will receive 1 mark for correctly identifying the statement as True or
False (please circle the correct answer) and 3 marks for an explanation
of your answer. You may use verbal or diagrammatic explanation as
appropriate. Please note explanations should not exceed 5 lines.  
C2(ii.a). When we add rational expectations to the 3-equation model, the
predictions of the model changes. (4 marks)
True or False? Briefly explain your answer.
C2(ii.b). There is no difference between Tobin’s q theory of investment
and permanent income hypothesis (PIH). (4 marks)
True False
C2(ii.c) The IS curve becomes flatter with a fall in the marginal tax
rate that decreases the size of the multiplier.  (4 marks)
True False