LONG-ANSWER QUESTIONS

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SYMBOLS: Y is output / income /expenditure / real GDP y is output per worker or output per effective worker K is capital k is capital per worker or capital per effective worker - L is labour - Cis consumption c is consumption per worker or consumption per effective worker I is investment i is investment per worker or investment per effective worker - G is total government expenditures T is total taxes S is national savings s is the savings rate - 5 is the depreciation rate - n is the population growth rate - g is the rate of technological progress MPK is the marginal product of capital r* is the world real interest rate r is the closed-economy real interest rate 3. Consider the Canadian economy in a state depicted by the following graph. s NX Ir) 5,1 1 i Use a graph and words to describe what would happen to I(r), S, NX. r. and r, if anything. when consumers and firms experience a permanent loss of economic confidence. ii. Use a graph and words to describe what would happen to I(r), S, NX. r. and r*, if anything, if the domestic) government decides to increase the level of health care services in the country. SYMBOLS: Y is output / income /expenditure / real GDP y is output per worker or output per effective worker K is capital k is capital per worker or capital per effective worker - L is labour - Cis consumption c is consumption per worker or consumption per effective worker I is investment i is investment per worker or investment per effective worker - G is total government expenditures T is total taxes S is national savings s is the savings rate - 5 is the depreciation rate - n is the population growth rate - g is the rate of technological progress MPK is the marginal product of capital r* is the world real interest rate r is the closed-economy real interest rate 3. Consider the Canadian economy in a state depicted by the following graph. s NX Ir) 5,1 1 i Use a graph and words to describe what would happen to I(r), S, NX. r. and r, if anything. when consumers and firms experience a permanent loss of economic confidence. ii. Use a graph and words to describe what would happen to I(r), S, NX. r. and r*, if anything, if the domestic) government decides to increase the level of health care services in the country