1. Explain how each of the following factors would inuence aggregate demand in Canada. Be sure to explain which component of aggregate demand would be affected. (18 Marks) a) Increased fear of recession b) Increased fear of ination c) Rapid growth of real income in Japan and Western Europe d) A reduction in the real interest rate e) An increase in income taxes f) A large rise in the value of shares on the stock market 2. Supposed that economy is currently at full employment. For each of the following events, explain the short-run and long-run effects on output and the price level, assuming policymakers take no action. (12 Marks) a) The stock market declines sharply, reducing consumers' wealth. b) The federal government increases spending on national defence. c) A technological improvement raises productivity. d) A recession overseas causes foreigners to buy fewer Canadian goods. 3. Assume that a hypothetical economy with an MPC of .8 is experiencing severe recession. By how much would government spending have to rise to shift the aggregate demand curve rightward by $25 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. (6 Marks)