ver 2020-2021, the Australian government increased government spending in response to the pandemic. Assume the government increased spending by $1 billion and this was entirely funded with government borrowing. nswer the following and demonstrate your answers using diagrams for questions 1 and 3 and referring your response to question 2 to your first diagram. (Note: make sure you label everything in the graph correctly, and nk it to your written explanations) Assuming all else is constant (ceteris paribus), what effect will this have on the demand and supply of loanable funds? How will this affect the real interest rate and the quantity of investment? Is the change in equilibrium investment the same, more, or less than the initial change in government spending? Why? Now consider that, in addition to the original increase in government spending, households are concerned about the future and are locked down in their homes so they spend $200 million less on consumption. How ould your answer in part a. change? Show it in a new diagram.

ver 2020-2021, the Australian government increased government spending in response to the pandemic. Assume the government increased spending by $1 billion and this was entirely funded with government borrowing. nswer the following and demonstrate your answers using diagrams for questions 1 and 3 and referring your response to question 2 to your first diagram. (Note: make sure you label everything in the graph correctly, and nk it to your written explanations) Assuming all else is constant (ceteris paribus), what effect will this have on the demand and supply of loanable funds? How will this affect the real interest rate and the quantity of investment? Is the change in equilibrium investment the same, more, or less than the initial change in government spending? Why? Now consider that, in addition to the original increase in government spending, households are concerned about the future and are locked down in their homes so they spend $200 million less on consumption. How ould your answer in part a. change? Show it in a new diagram.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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