The Hang Seng University of Hong Kong EC01002 Business Economics 2 Assignment 2 (Topic 3 Production and Growth and Topic 4 Saving, Investment and Financial System) Group: L Student Name: Student ID: Question 1 Put a tick in the government policies that are likely to help poor countries grow. (3 marks,- lm for each correct answer chosen; 1m for each incorrect answer chosen) subsidize key industries subsidize universities in doing researches lend support to the invisible hand by maintaining property rights and political stability limit foreign investment to industries that don't already exist in the country impose trade restrictions to protect the interests of domestic producers and consumers provide free vaccinations of COVlD-19 to the public l_ll_ll_ll_ll_|l_| Question 2 A closed economy has GDP of $1,000, consumption of $600, government spending of $250 and a budget deficit of $50. (i) Find investment expenditure and private saving. (3 marks) Question 2 A closed economy has GDP of $1,000, consumption of $600, government spending of $250 and a budget deficit of 550. (i) Find investment expenditure and private saving. (3 marks) (ii) Suppose now the government raises taxes by $50 to balance the budget. Consumers spend $50 less to pay for the rise in tax. Assuming GDP is not affected. How will the rise in tax affect national saving and investment? (2 marks) J Question 3 In a closed economy, due to the COVlD-19 pandemic, the business community becomes more pessimistic about the profitability of capital. Use a supply-and-demand diagram for loanable funds to explain the effects on the equilibrium interest rate and equilibrium saving. (5 marks) Question 4 Consider two countries, Country X and Country Y. Country X is a poor country while Country Y is a rich country. Suppose the governments of both countries encourage their households to consume less and save more, in order to raise the growth of GDP in the countries. (i) Explain how higher rate of saving would lead to higher growth of GDP. (3 marks) Consider two countries, Country X and Country Y. Country X is a poor country while Country Y is a rich country. Suppose the governments of both countries encourage their households to consume less and save more, in order to raise the growth of GDP in the countries. (i) Explain how higher rate of saving would lead to higher growth of GDP. (3 marks) (ii) Would both countries have similar growth rate of GDP if they have the same rate of increase in saving? Explain. (4 marks) 2/2