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Let the Canadian economy be described below. You are an economist in the Department of Finance, Ottawa. = 70 + 0.7Yd (Yd is disposable income) I = 330 (Investment spending) = 230 (Government purchases) NT = 0.2Y (Net taxes) = 20 (Exports are constant) IM = OBEY (Imports depend positively on our own Y) a) Calculate the equilibrium Y. b) Find the autonomous multiplier. Autonomous multiplier = c) Find the govemment budget balance BB, given your Y in (a). d) Oil prices have been rising recently. Higher crude oil prices translate to higher costs for gasoline. plastic and many products. Suppose the higher oil prices translate to our investment spending dropping trorn 330 to 130 due to a weaker investment condence. Find the new Y. c) Find the BB as a result of the drop in investment spending. f) Is this change in BE due to an increase in govemment spending, i.e.. is the Canadian government to be blamed? C- No C,- Yes g) Suppose the government wants to push the economy back to the Y level in (a) but with the investment spending still at I = 130. Find the new G necessary. G = 0 h) Also find new BB with the government spending in (9) and the investment spending = 130. BB = 0 i) Without further calculations, use the AD-AS diagram to demonstrate the effect of the government's action in (9). Be sure to include the initial drop in investment spending from (d) in your diagram. Original Equilibrium (Point) 135- De 120- 105-AS Price level 90 75- 60 45 15 400 800 1200 1600 2000 2400 Reset Real GDPi) Without further calculations, use the AD-AS diagram to demonstrate the effect of the government's action in (9). Be sure to include the initial drop in investment spending from (d) in your diagram. Original Equilibrium (Point) Original Equilibrium (Point) Investment effect on aggregate demand Investment effect on Equilibrium (Point) Government action effect on aggregate demand Government action effect on equilibrium (Point) 105 -AS Price level 90 75 60 45 30 157 0 400 800 1200 1600 2000 2400 Reset Real GDP