1. If a government reduces taxes on income: a) How will total saving and investment be affected? b) How does Ricardian equivalence affect your answer to a)? 2. Using the IS-LM-FE model of a small open economy: a) explain the impact of an increase in the money supply. b) How is your answer to a) affected if the country's major trading partners also increase their money supply? 3a) Explain how the Bank of Canada sets the overnight interest rate. b) .Why is the overnight interest rate a useful tool for Monetary policy