Canadian economy in long-run equilibrium

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Consider the Canadian Economy in long-run equilibrium. Petronas, a large natural gas firm injects $40 billion worth of new investment (natural gas pipelines, processing etc.) into the Canadian economy.

a. Graph the impact of this shock on the Canadian Economy. State whether the Canadian economy is in an expansionary or recessionary output gap following this shock

b. The Canadian economy, amongst other metrics, is defined as having a Marginal Propensity to Consume of 0.9, a net tax rate of 10% and a marginal propensity to import of 0.06. By how much will real expenditure increase by, before prices adjust? Identify this amount on your graph from Q3a

Relatively speaking, would the Canadian economy witness a relatively quick or slow natural adjustment back to long-run equilibrium, explain why.

Reference no: EM132482201

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