Singapore government has taken various fiscal policy measures tomanage the economic impacts of the COVID-19 pandemic and support the economy through the pandemic-induced recession.

a.) We learnt in the class that fiscal policy measures mainly work through aggregate demand side of the economy in the short run. Discuss two macroeconomic effects that can make the size of the shift in aggregate demand differ from the initial fiscal expansion. Explain in words (120 or less) and illustrate using a diagram.

b.)What is the main macroeconomic variable that can affect the size of the multiplier and how? (explain in 100 or less words). Suppose household saving rate (savings as % of GDP) has increased from 54% in 2019 to 55% in 2020. How would this affect the size of the multiplier effect (strengthen or weaken) and why?