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1. A newly-elected government has recognised that many of its citizens are struggling to make ends meet, even if they are working. This has been caused mainly by rising prices of domestically- produced goods and services. The government is considering a change in its economic policy to deal with this problem. The proposed policy change would provide a monthly cash transfer of $500 to all individuals in employment who are making $3000 or less each month. The government estimates that 35% of the working population falls into this category. The gov- ernment intends to pay for this cash transfer to low-income individuals by imposing a 2% tax on all imported goods and services. The government does not intend to change its sales tax, which applies to all goods and services consumed, whether domestically-produced or im- ported. At the same time, the government recognises that many firms use both domestic goods and services and imported goods and services as inputs into their production processes. The government is concerned that there might be an increase in unemployment due to rising prices. It is not sure, however, how to design an economic policy to offset this. The central bank is considering whether it should raise or lower interest rates, which affects the cost of capital as a factor of production. The central bank wants to help, not hinder, the government in achieving its policy goals. You are asked to write a 2000-3000 word economic policy report describing the expected impact of this policy change. The government wants to be sure that its policy change will be fair, and will not have unintended effects on its citizens. You are expected to provide analysis based on your knowledge of economic theory learn in this class. You are expected to provide advice about whether this is a good policy or not, along with recommendations if you think there are better ways to achieve the policy objectives of the government

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