1. Suppose the economy suddenly experience a lower level of unemployment and a higher price level in the short-run. What could be responsible for this:An increase in Net TaxesORa decrease in wagesORa decrease in interest rate?Choose one and explain with a graph.
2. Suppose the government implements a policy that increases taxes on both business investments and consumption at the same time. Use a National savings and Investment demand diagram to briefly explain the effect of this policy on thereal interest rate and Investmentin the economy.
3. Answer the following questions (Show your work):
   1. Suppose a closed economy has national income of $50 million, Investment of $2million, Inflation rate of 5%, net tax rate of 15% and a budget surplus of $4 million. Find value ofgovernment purchases (G).
   2. Assume the country of Malawi does not trade with any other country. In the long-run, its income is $20 billion, its consumption expenditure is $4 billion, its net tax revenue is $5 billion and has a budget deficit of $2 billion. What is the value of its investment?

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