1. Suppose the Canadian economy is facing a major global recession, and the minister of finance presents a plan to stimulate the economy.
a) Describe the basic fiscal tools at his disposal.
b) Using the income-expenditure model, explain the effect on GDP from an increase in G by $5 billion.
c) Using the income-expenditure model, explain the effect on GDP from a tax rebate equal in value to $5 billion.
d) Can you offer one reason why the minister of finance might choose to emphasize increases in government spending rather than tax reductions in a federal budget in an effort to increase national income?
2. According to a Reuters report on Oct. 8th, Australian consumer sentiment plunged to four-year low in this month. Explain and draw graphs to explain how decreasing consumer confidence influences aggregate expenditure and aggregate demand.
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