1. Consider the following two headlines appearing in the same day: "BC Government plan to pay its residents a covid recovery benefit" and "increased gas prices drive up transport costs for firms."

What will happen to government purchases, price level and Real GDP in BC in the short-run?

2. Assume an economy is in a long-run equilibrium with real GDP equal to potential output. Now suppose increased financial innovation decreases people's demand for holding cash and chequable deposits. Use a graph to show and briefly state how this impacts interest rate, real GDP and the price level in the short-run. What kind of gap is created in this economy? Also

show and explain how the economy can return to potential GDP in the long-run.

3. Suppose the government implements a fiscal policy that increases taxes on business investments and decreases government purchases. Use a National savings and Investment demand curve to show the effect of this policy on the real interest rate and national savings?