Question 2: Almost the election time, and to gain votes from his undecided voters, Mr. Goerge imposed tax on the nation whose bilateral merchandise trade surplus with his country - Pundit exceeds $20 billion which including Thailand. Assume the marginal propensity to consume is equal to 0.8 and the crowding out effect is $100 billion.

a. Assume the Thai's economy is at the natural rate of output, using the aggregate demand and aggregate supply (ADAS) model to draw and explain the impact of George's policies on the Thai's economy.

b. Mr Goerge's policy causes total Thai's export to decline by $300 million and foreign firms are reluctant to invest in Thailand causing investment to decline by $100 million. Calculate the impact on Thai's GDP?

c. In order to close this gap, the government increases spending by $200 million and lower the tax by $10 million. Is it enough to cover the decline in GDP found in b? What is the total impact from b to c?

d. In your opinion, should the government stabilize the economy? Why and why not?