Q1. Assume that the government spending rises in a closed economy. Would the effect on aggregate demand be bigger if the Bank of Canada took no action in response or if the Bank were committed to maintain a fixed interest rate? Describe.

Q2. In which of the given circumstances is expansionary fiscal policy more probable to lead to a short-run increase in investment? Describe?

a) If investment accelerator is large or when it is small?

b) If the interest sensitivity of investment is large or when it is small?

c) If the marginal propensity to import is small, or when it is big?