1 Assume the economy of Crosbyland is currently at full employment. The government of Crosbyland reduces the tax rate on households earnings.
	a. What will happen to private savings in Crosbyland?
	b.Based on a correctly labeled Loanable funds graph, what will happen to the Supply of Loanable funds and real interest rates.
	c. Given the real interest rate change identified in part (b), answer the following questions
		i. What is the short run effect on aggregate demand? Explain
		ii. What is the long run effect on potential  real GDP in Crosbyland? Explain ( hint this one involves shifting your LRAS)

2. The following is a balance sheet for Crosby First Superior Bank

Assume that the required reserve ratio is 10%
a. what is the dollar value of new loans that Crosby First Bank can make? Explain.
b. Mr. Smith deposits 100 of cash in a demand deposit account in Crosby First Bank. Calculate the maximum amount of new loans that Crosby First Bank can now make.
c. As a result of Mr. Smith's $100 cash deposit, calculate the maximum change over time in each of the following in the banking systems
	i. Loans
	ii. Demand deposits

3.  . Canada is an open economy that is currently in a recessionary output gap.
(a) The central bank and the government do not take any policy actions to close the output gap.
(i) Explain how the economy will adjust to full employment in the long run.
(ii) Based off a  graph in part (a),  what will happen to Price level and Unemployment rate
(c) Suppose the Canadian government is unwilling to wait for the long-run adjustment process. The marginal propensity to consume is 0.8. The equilibrium real output is $500 billion and the full-employment output is $540 billion.
(i) Calculate the minimum change and indicate the direction of change in government spending required to shift the aggregate demand curve by the amount of the output gap.
(ii) Calculate the minimum change and indicate the direction of change in taxes required to shift the aggregate demand curve by the amount of the output gap.