1.What effect will the following have on the consumption schedule

a)An impeding way is expected to result in a shortage of goods and adoption of a rationing system.

b)A substantial increase in the price of oil is expected to push up consumer price index

c)There is consensus that the recession is over.

2.According to the permanent income hypothesis, what is the likely behaviour of transitory income and the rate of savings over a business cycle?

3.How can liquidity constraints restrict consumption?

4.Suppose the demand for money is L = 0.20Y, the money supply is $200, C = $90 + 0.80Yd, Tx = $ 50, I = $140 - 5i an G = $50

a)Derive the IS and the LM equation,

b)Find equilibrium output, the rate of interest and investment

c)Derive the IS equation when the government spending is increases by $20, ceteris paribus.

d)Find the output, rate of interest and investment when government spending is $70