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Q2. a) Consider the scenario in which the U.S. government phases out all Social Security transfers to retirees. Assuming the goods market is in equilibrium,
Q2. a) Consider the scenario in which the U.S. government phases out all Social Security transfers to retirees. Assuming the goods market is in equilibrium, graph the new saving curve and comment on the effects on the level of saving, investment, and the real interest rate. [2 marks| b) The financial crisis that hit the United States first and then the world economy starting in fall 2007 meant that the future prospects of many firms looked gloomy at best for some time. Comment on the effect of a recession on the investment curve (only) and on the level of savings, investment, and the equilibtium real interest rate. Show your answers using a graph. [2 marks] c) Comment on the effect of a decrease in autonomous investment on wealth when the economy can be considered a (i) closed economy and (ii) small open economy [2 marks]
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