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Principles of Economics Short-answer Assignment (20% of final mark)Write approximately 250 words in response to each question (unless it is a calculation question).Include diagrams where appropriate. 1. Assuming a Keynesian perspective, what fiscal policy actions would you recommend in thefollowing situations?a. The Australian economy is currently operating at its potential level of real GDP, andthen the Chinese economy enters a recession.b. The unemployment rate falls below its ‘natural’ rate such that labour costs across allindustries start to rise.c. Rapid technological innovations increase potential real GDP.2. Let’s say we have the following information about an economy.C : Consumption by households = $800 billionI : Investment spending by firms = $50 billionG : Government spending = $200 billionT : Tax revenue = $190 billionX : Export spending by foreigners = $80 billionM : Import spending by domestic residents = $70 billionmpc : marginal propensity to consume = 0.8a. What would be the current level of total expenditure in the economy?b. If a fall in interest rates resulted in investment expenditure increasing to $100million, to what level (in dollars) would real GDP rise?3. Evaluate the claim that the US economy can be made ‘great’ by imposing high tariffs ongoods imported into the US imported.4. What do open market operations have to do with monetary policy?

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