Question: In Canada in 2000, consumer confidence rose substantially, causing autonomous consumption expenditures to increase more than economists had predicted.
1) Demonstrate graphically with the multiplier model a shift in the AE curve that would have resulted from the increase in autonomous consumption expenditures.
2) Demonstrate graphically which phase of the business cycle is the economy likely to be operating.
3) What would happen to unemployment and inflation rate? Explain.
4) How could the government use spending or taxes separately (not together) to counteract the effect on GDP in (a)? Does a given change in government spending (say, $1 billion) have the effect on GDP as the equivalent ($1 billion) change in taxes?