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1) In an economy operating in short-run equilibrium, assume that households believe and know that the present and  anticipated increase in government surplus for the coming 5 years would result in more social security payments in the form of after-retirement payments granted from the government to all citizens at old age. Based on this belief, many citizens started to re-think their spending and saving decisions for their future if this situation really occurred. (assuming all other variables remain constant)

a. How will this belief affect the market of Loanable Funds today? Describe your answer in words and graph?

b. Demonstrate how this effect in the market of Loanable Funds would reflect on the economy market. Describe your answer in words and graph using the AD-AS model.

2) In an economy (X) operating in a state of short-run equilibrium, the government has announced new relaxing rules and regulations to foreign investments in many business sectors operating inside the economy. 
How does the introduction of these new investment rules and regulations affect the market of Loanable Funds? Describe your answer in words and graph.

3) In an economy in a state of short-run equilibrium, suppose that the government imposed a new tax on all technology and machinery and equipments sold inside the country.
Show the effect of this economic fluctuation on the whole economy in words and graph using AD-AS model.

4) Given an economy operating in a state of long-run equilibrium. In this economy, the government announced a deal to build 100 public hospitals in 5 major cities of the country  in the amount of $500 billion.

a. Show the effect of this economic policy on the entire economy in words and graph using AD-AS model.

b. What must governments do to stabilize the economy using the tax fiscal policy instrument, indicate what should be done? Show the effect of your suggested policy in words and graph of the AD-AS model?

You have to draw ONE GRAPH for parts (a) and (b) above

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M91421

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