Question 2: Suppose the following values are from the national income accounts of a country with an open economy. C =120 + .80(Y-.3Y) l=20 - .2i, where i is the interest rates of 5% and l is investment G = 35 X: 40 M = 10 Where C is consumption, l is investment, G is government spending, X is exports and M is imports. . 3Y is taxes and Y is income. a) What is disposable income in this economy? Why does disposable income decrease during pandemics? Is this a system of progressive or flat taxation (based on the model above)? b) Why does government spending act like a stabilizer during recessions? What should the role of government be during booms and busts? Should they always be involved or is there times when governments should take a hands off approach. c) Find an equation for aggregate demand in this economy. Find the optimal level of output in this economy. Once you do this, find the optimal levels of consumption. If we were in an expansion phase of the business cycle, where would the real economy be relative to potential? Explain. Graph your answer and be as clear as possible. d) How could a shock such as the elimination of the Keystone Pipeline impact aggregate demand and the potential in the economy? Be as clear and sufficient when answering this question. e) In a model discussed above (and given political factors in the US) what do you recommend Canada's trade policies be with respect to the US and the rest of the world? Do you propose a change in stance? Why or why not? 1') How will COVID affect our supply curves (if at all) if COVID lasts for a prolonged period of time and why? What if the response of the Bank of Canada was muted and they could not lower interest rates and further, how would this impact our aggregate demand curve and why? What if the response of the department of finance was to take a wait and see approach, how would this impact our aggregate demand curve and why? How would the economy adjust to the long run in such a case(s)