Economics 248 Assignment 2B This assignment has a maximum total of 100 marks and is worth 20 percent of your total grade for this course. You should complete it after completing your course work for Units 5 and 6. Answer each question clearly and concisely. 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 benets 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) a) 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) b) Explain and draw a graph to illustrate how the Canadian aggregate demand changes as a result of the U.S. stimulus spending. (5 marks) c) 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) d) Explain how the unemployment rate and ination would be affected by the U.S. stimulus spending. (5 marks) 2. Consider a small open economy described by the following equations: Y=C+I+G+XM C=150+0.8(YT) I=300 G=150 X=70 M=0.2Y T=50+tY where Y is GDP, C is consumption, I is investment, G is government expenditures, X is exports, M is imports, T is taxes, and t is the tax rate on income. Ifthe economy were at its natural level of output (i.e., full employment), GDP would be 1000. (Total marks = 20) a) What is the tax rate (t) in this economy? Show how you arrived at the answer. (5 marks) b) What is the marginal propensity to consume and the expenditure multiplier in this economy? Show your work. (5 marks) c) Suppose the government xes the tax rate (t) at 35% (i.e., at 0.35), and solve for GDP. How does it compare to the natural level of output? Show your work. (5 marks) d) Suppose the government wants to offset the change in the level of GDP caused by the change in the tax rate in (c). By how much should government expenditures change to return GDP to its natural level? Show your work. (5 marks) ECON 248v10 Assignment 2B January 2022 3. Use appropriate graph(s) to explain the effect of each of the following events, if any, on the position of the short- and long-run aggregate Supply curves and the aggregate demand curve for a small open economy. (Total marks = 20) a) The country experiences a brain drain as its skilled people migrate to other countries for better wages. (5 marks) b) The country acquires new technology that improves productivity. (5 marks) c) There is an increase in the income of the country's major trading partners. (5 marks) d) Firms in the country expect future prots to increase. (5 marks) 4. Consider a small open economy with perfect capital mobility and a exible exchange rate. Suppose that net capital outow (NCO) is positive at the world interest rate. Use a two-panel graph to explain the following. (Total marks = 20) a) What is the is the effect of a decrease in world interest rate on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? (5 marks) b) What is the is the effect of an increase in the government budget surplus on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? (5 marks) c) What is the is the effect of a decrease in the government budget decit on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? (5 marks) d) What is the is the effect of abolition of an import quota on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? (5 marks) 5. The economy of Country X was hit hard by the Covid-19 pandemic. The crisis saw the unemployment rate increase from 5.7% in 2019 to 9.5% in 2020. During the same period, the ination rate decreased from 1.9% to 0.7%. Using appropriate graph(s), explain the following. (Total marks = 20) a) Did a trade-off exist between the unemployment rate and the ination rate during 2019 and 2020? How can the Phillips curve be used to answer this question? (5 marks) b) If the unemployment rate and ination are both rising, can this be explained by a movement along a given Phillips curve? What must be happening to aggregate demand and aggregate supply? What must be happening to the Phillips curve? (5 marks) :ECON 243140 Assignment 213 January 2022: e) If the central bank of Country X implements expansionary monetary policy, how will the unemployment rate and ination be affected? (Use both Phillips Curve and aggregate supply aggregate demand graphs in your explanation.) (5 marks) d) Is there a trade-011" between the unemployment rate and ination rate in the long run? Explain how the long-run Phillips curve is related to the long-run aggregate supply curve