1. A US$2 trillion proposed spending by the U.S. President Joe Biden has delighted many in Canada who believe that a large stimulus in the U.S. will have spillover benefits for Canada. At present, Canada's economy is operating below the natural level of output, with high unemployment rate. Answer the following questions. (Total marks = 20)
2. Which component(s) of the Canadian aggregate demand is likely to be the most affected by stimulus spending in the U.S.? Explain. (5 marks)
3. Explain and draw a graph to illustrate how the Canadian aggregate demand changes as a result of the U.S. stimulus spending. (5 marks)
4. How is the change in Canadian aggregate demand in (b) expected to affect the equilibrium level of output and price level in the short run? (5 marks)
5. Explain how the unemployment rate and inflation would be affected by the U.S. stimulus spending. (5 marks)