1. Answer the following questions:
a) Write down the national account identify for a closed economy. Then, show the identity between national savings (i.e. the sum of private savings and government savings) and investment. You must show all of the steps. (2 marks)
b) Write down the national account identity for an open economy. Again, show the identity between national savings (i.e. the sum of private savings and government savings) and investment. Show all of your steps. (2 marks)
c) Based on the saving and investment relationship in the closed economy in Part a), explain how an increase in government purchases (G) can affect growth in output per worker. We assume that the taxes that the government collects remain unchanged. (2 marks)
1. Analyse the effects of the following events in the loanable fund market diagram where we have (real) interest rate (r) on the vertical axis and the quantity of loanable fund (Q) on the horizontal axis. Please ensure to explain what happens to private saving, private investment spending, and (real) interest rate, and demonstrate it changing a figure below.
a) An increase in government purchases (2 marks).
Answer here (Tips: to create new lines, simply copy the existing curves and move to the new location)
a) Australian business becomes very optimistic about the future course of the economy and this increases the prospect of their profitability at any given (real) interest rate. Assume the government budget balance is zero. (2 marks)
1. The level of government debt is a growing concern for the current Australian Treasurer who has the responsibility of managing the government budget. Summarise the key arguments on the debate around Australian government deficit. Your summary must address the following;
·What is the major concern of running government deficits?
·What is the economic reasoning to have a balanced budget? and
·When might a budget deficit/surplus be OK?
Conclude by briefly discussing what policies you would suggest to the Treasurer in order to balance the budget and why. The summary should be at least half a page in length (3 marks).
Need assignment by 4pm Australian EST 22nd of April.