1.Using the macroeconomic model for a small open economy studied, analyze the impact of the following event on Canadian savings, investment, exchange rate and trade balance in the Canadian economy:

event: in theU.S.,the federal government ran very large budget deficits.

Explain thoroughly with words + graphs.

2.For the following event, explain for the open economy Canadian market, the short run and long run effects on aggregate demand (AD), output, price level, interest rate, exchange rate, trade balance assuming policymakers take no action. Also, explain what happens when the Central Bank maintains a fixed exchange rate.

Event: in Canada, the federal government committed more than $ 6 trillion for public works, new equipment for armed forces, highway constructions, research spending, hospitals and schools.

Explain thoroughly with words + graphs.