Q1. For each of the following separate scenarios, determine the associated shortcomings of fiscal policy. crowing out, impact lag, implementation lag, savings shift. or recognition lag.

1. Even though the government cuts taxes today, it will raise taxes in the future. i should save more now to prepare for a tax hike.
2. A young adult enrolls in a government- sponsored driving school and saves the money she would have spent on driving instruction.
3. Right before this big recession, the government said that the economy was doing very well.

Q2. MPC = 0.9. If the government cuts taxes by $50 million, how much will the AD increase?

Q2. MPC = 0.8. The government wants to increase AD by $400 million. How much should the government increase spending?