Tutorial 5 Answers - University of British Columbia Econ...

University of British Columbia
Econ 302
Tutorial 5
11 th July 2012
Question 1
Suppose that in the flexible-price full-employment model, the government increases taxes and
government purchases by equal amounts. The tax increase reduces consumption spending. What
happens--qualitatively (tell the direction of change only) to investment, net exports, the exchange
rate, the real interest rate, and potential output?
Question 2
Give three examples of changes in economic policy or in the economic environment that would
shift the total savings curve on the flow-of-funds diagram to the left.