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ECONOMICS 110/112 Assignment #5/#2 2013/2014 Due Dates and Notes: • DUE: By Friday February 28, 2:00 PM. Completed assignments should be placed in the slot marked for your section in the white assignment collection box on the 2nd floor of Dunning Hall. Late assignments will not be accepted. • Use the Cover Page when submitting assignments. Place diagrams for particular questions with your answers to those questions. • Group Work: Maximum four per group, all students must be registered in the same section of the same course. Names must be in alphabetical order on the cover page. • Graded work will be available for pick-up beginning on the afternoon of Friday March 14 in the Econ Distribution Center, Dunning…show more content…
[Hint: Remember that consumption and saving are functions of disposable income.] [8] (c) Suppose as a result of a financial crisis, investment decreases to 1 and exports decrease to 2. What is the new level of national income? Illustrate the effects of the financial crisis in your diagram for part (a). What is effect on the government’s budget? [Hint: Using the multiplier simplifies the calculations.] [6] (d) Suppose the government decides to use an increase in government spending to restore national income to its original level. By how much would it have to increase spending? What happens to the government’s budget balance? Explain why the government’s deficit does not increase by the full amount of the increase in spending. [4] A5-11. Using diagrams for aggregate expenditures (AE) and aggregate demand and supply (AD-AS), show the short and long run effects each of the following events has on the Canadian economy. Be sure to identify the cause of any shift or movement along AE, AD, SRAS, and/or LRAS. In each case, assume that the economy is initially in both short and long run equilibrium [Hint: Your diagrams for each part should look something like those in Figure 23-8, or 23-10 in your text, with the addition of a LRAS curve.] (a) The government

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