(a) What assumptions are behind the PIH? How reasonable are they?

(b) Imagine an isolated village consisting of people, a single factory and shops. Describe the multiplier process in this village if the factory closes. What would change this mechanical description of the multiplier process?

(c) Do you think your lifetime consumption will be smooth? If not, why not?

(d) What are the mechanisms by which the goods market adjusts when the economy is off the IS curve?

(e) Is investment undertaken by individuals carefully calculating net present values or daring entrepreneurs taking incalculable risks?