17. Suppose that you have the market for loanable funds is originally in equilibrium with zero government debt. The loanable funds market is represented by the following demand and supply functions.

Demand: r = 8 - 0.003Q Supply: r = 0.002Q

The government then runs a deficit and it changes the supply curve to:

r = 1 + 0.002Q

Calculate the amount of crowding out in the economy.

Answer:

18. Suppose that there is an economy with the AD and AS functions below:

AD: P = 6700 - 2Y SRAS: P = 500 + 2Y LRAS: 1000

Calculate the recessionary or inflationary gap.

Answer: _________

19.

Use the following diagrams to analysis the following scenarios. State whether you think it will be graph A, B, C, D, E, F, G or H. In your answers only include the letter, so if you think it is graph a, just put A as your answer. Assume that the economy was in long run equilibrium before the scenario occurred. C gure {AD/AS) In the long run Scenario: China iron ore demand has increased the need for Canada to ship more of its iron ore overseas, resulting in a record weekly gain in iron ore sales for Canada. Suppose that the Canadian government decides to initiate fiscal policy. What will happen to the Canadian economy in the long run? Be sure that your answer only includes the long run analysis, starting from the short run gap