2) Given economy (X), assume that the government decided to reduce taxes on private saving a. Show the effect of this government policy on the market of Loanable funds in words. (1.5 points) b. Sate in words the effect of this policy on economic performance of the economy (0.5 points) 3) Given an economy operating in a state of long-run equilibrium. This economy suddenly faces unstable security situation that led the government to announce and finalize a deal to buy new fighter planes and missiles. a. Show the effect of this economic policy on the whole economy in words and graph using AD-AS model. (1.5 points) b. What should governments do to stabilize the economy using the tax fiscal policy instrument specifically, indicate what should be done? Show the effect of your suggested tax policy in words and graph on the AD-AS model? (0.5 points) Hint: you may (if you want) use one graph for parts (1) and (b) above showing effects clearly on same graph. 4) For an economy operating in a state of short-run equilibrium, the government needs extra funds to finance its excessive expenditures. For this reason, it decided that it must achieve a budget surplus to be able to finance its excessive expenditures, and it succeeded to achieve a surplus in its budget. a. Explain what is meant by a Budget Surplus and when does it occur in an economy? What is the effect of such a decision (achieving a budget surplus) on the market of Loanable Funds? Explain your answer in words and graph. (1.5 points) b. Explain the effect of this decision on the market economy using AD-AS model. Draw graph of AD-AS and explain effect in words. (1.5 points) c. Is "achieving a budget surplus" a good decision to help this government in financing its excessive expenditures? If yes, explain why and how this is a good decision and if no, explain what could you suggest as a better alternative decision or policy to be followed by the government to achieve this objective?. (1 points)