1.The Abbott government is concerned about the growing budget deficit, so they decide to cut government expenditures by $10 billion. They also decide the economy needs a boost so they decide to cut income taxes by $30 billion. Would this simply mean a net increase in aggregate demand of $20 billion? Why or why not?

2.For various reasons, fiscal policy changes automatically when output and employment fluctuate.

A) Explain why tax revenue changes when the economy booms.

B)Explain why government spending changes when the economy goes into a recession.

C)If the government were to operate under a strict balanced-budget rule, what would it have to do in a booming economy? Would that make the boom more or less extreme?