Demand shocks and economic outcome

e read Chart 10 “Consumer confidence has improved but remains subdued” and Page 22
“Business investment is likely to remain weak”.

1. How do you expect the changes in these varaiables since the start of the COVID to affect
   the IS curve in Canada? Please explain.
2. Show in the IS-LM graph the impact of these changes on the level of output in Canada in
   the short run.
   Part II Fiscal policy and economic outcome [12 marks]
   Please read Page 13 “Fiscal and monetary authorities responded swiftly”.
3. What fiscal policy (including taxaxtion, government spending, and government transfers)
   measures have been taken by the governments (federal, provincial, and territorial)?
4. Please show in an IS-LM graph how the policy measures affect the interest rate and the
   level of output in Canada in the short run.
5. Explain how the conduct of fiscal policy affects consumption and investment in
   equilibrium.
   Part III Monetary policy and economic outcome [12 marks]
6. Suppose that with the liquidity facilities and asset purchase programs, the Bank of Canada
   increased the money supply. How do you expect this to affect consumption and investment
   in equilibrium? Is your answer the same as that for the fiscal policy in Part II Question 3?
   Please explain.
7. Please show in an IS-LM graph how the fiscal and the monetary policy conducted at the
   same time affect the interest rate and the level of output in Canada in the short run.