1.Suppose economists observe that an increase in government spending of 200 crore taka raises the total demand for goods and services to 300 crore taka. If these economists ignore the possibility of crowding out effect, calculate the marginal propensity to consume (MPC)?

b) Now suppose economists allow for crowding out. Would their new estimate of the MPC be smaller or larger than your answer to part a, explain.

4. Suppose an economy is hit by a flood and its natural resources decreases.

a) Show graphically using AD-AS model how the price level and output are affected in the short-run.

b) Can the government use monetary policy to offset the effects on price level and output, explain.

5. Suppose an economy is hit by a recession and people's income fall.

a) Show graphically using AD-AS model how the price level and output are affected in the long-run.

b) Can the government use fiscal policy to offset the effects on price level and output, explain?