1. [True and False] Indicate whether each of the following statements is true or false, and explain each of your answers with words, numbers, and/or a diagram, as relevant.

a. Government will automatically collect more tax revenue and spend more on transfer programs when the economy is doing well, thus causing real GDP to increase further.

b. The Fed will always be able to lower interest rates by increasing the money supply.

c. Suppose the real GDP is $5 trillion, structural surplus of government is 5%, and the current surplus is $100 billion. The real GDP is now below potential.

d. Suppose there are two goods, widgets and gidgets, and two countries, A and B. If Country A has the comparative advantage in producing widgets, then Country B has the comparative advantage in producing gidgets.

e. Based on the expanding markets model, gains from trade are concentrated in industries with constant returns to scale.