1. The population of the Czech Republic is ageing quickly and the old, who spent a relatively small proportion of each new crown (their monetary unit) of income, are being replaced by the young who spend a relatively larger proportion of their income. Older citizens also have different fixed consumption expenditures than in their younger days. Illustrate on a graph of planned expenditures how various changes in the components of consumption behavior of Czech consumers can/will affect the consumption function and thus equilibrium output. Explain why the graph changes if consumption changes, and illustrate the effect on equilibrium output. Would it be possible for young Czechs to both spend a larger proportion of each new dollar of income and still save in the same proportion as their elders? Explain.

1. During economic expansions economists, investors and policy makers are always watching out for signals of the next recession. Any forecast of a turning point in the business cycle is, explain why would a decline in planned spending be seen as a sign of coming weakness in actual GDP and the economy? Second, considering that GDP is broken into four components - C, I, G, NX - which of the subcomponents of these four general categories would most likely be the focus of the analysis, and why? Are the importance of these subcomponents the same for all countries?