Question 1

How will the following situations affect the investment demand curve? Draw a diagram for each to illustrate your answer.

• A new type of manufacturing machine has been developed that is not only cheaper but also more energy efficient.
• To reduce the fiscal deficit, the government increases corporate taxes.
• Unplanned inventories rise to new highs in the economy.

Question 2

The data in the first two columns below are for a private closed economy.

• What is the equilibrium GDP for the private closed economy?
• Including the international trade figures for exports and imports, calculating net exports, and determining the equilibrium GDP for a private open economy.
• What is the size of the multiplier in this economy?
• What will happen to equilibrium GDP if exports were $10 billion larger at each level of GDP?
• What will happen to equilibrium GDP if exports remained at $15 billion, but imports rose to $15 billion?