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Unformatted text preview: right. e. Rapid growth in GDP in Canada and Mexico Canadians and Mexicans have higher incomes, US exports X increase, AD shifts right. f. A fall in long term interest rates It becomes cheaper to borrow, there is more expenditure on Investment I and consumer durables, AD shifts right. g. A rise in long term interest rates. The opposite; NO h. A smaller government budget deficit. The deficit is (G T); if that is smaller, either G is smaller or T is bigger. If G is smaller, AD has decreased. If T is bigger, disposable income [income after taxes] is smaller, so consumption expenditure C will be smaller, AD has decreased. NO. i. Expectations that investment and government purchases will increase soon. This implies AD will increase soon, so expectations will be of higher income soon, so consumption and investment will tend to increase now, AD shifts right....
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- Spring '05