1. Consider a closed economy Keynesian model.

An exogenous boom in private sector investment demand can be partially offset by a decrease in government savings.

True or False? Explain.

2.

Consider a standard AD-AS model. Suppose the economy starts at an initial long run equilibrium with 11-3 = 77* and Y : 1\" when it is hit by both a demand shock 5D and a supply shock 53, In the short run equilibrium, we nd that 11' = 7r* andY 0 and a "large" adverse demand shock, ED > 0. True or False? Explain