1. Suppose the Prime Minister of Canada announces that the federal government would increase its spending on day-care services for working families by $10 billion.

• What is the impact on GDP of this policy?

2. In order to finance this spending, the government will impose a new tax of $10 billion.

• Will the GDP stay the same since exactly the equivalent amount in taxes (to spending) will be collected from the public? Explain?

Hint: Take into account the impact of the multipliers

3. We are expecting a recession . Please explain (show using the AD-AS graph) this with the help of the AD-AS framework.