Question 3:

Draw a diagram of the loanable funds market. Now let's say that households save more. Draw the change on this diagram. Be sure tolabelcorrectly.

Question 7:

Country S is experiencing a recession. One fiscal policy tool to solve this is to increase government spending.

1. What is the goal of the government in AD-AS diagram?
2. As a result of the increase in government spending, what shifts in the money market diagram?
3. Draw this.
4. What happens to interest rates as a result of this shift?
5. As a result of this change in interest rates, what is the effect on AD?
6. Explain Crowding Out.

Question 8:

Country S is experiencing a recession and has already increased government spending. However, the government does not want to increase taxes, as this will decrease AD. So the government borrows money to fund the increase in government spending.

1. What is created as a result of the government's actions?
2. What happens to the market for loanable funds?
3. Draw this diagram.
4. What is the outcome for interest rates?
5. How does this affect the AD-AS diagram?
6. Explain the difference between complete crowding out and partial crowding out.