QUESTION 1 “Fuel is one of the main commodities for many sectors. Assume that a war breaks out in Country A, which is the main producer for fuel in the world, causing fuel supply disruptions in the world.” In this context, answer the following questions using appropriate diagrams and suitable explanations. a) Explain the changes in the price and quantity equilibrium for fuel following this event. b) From your answer (a) above, what will happen to the demand and supply for cars? What will happen to the price and quantity for cars due to the war? Illustrate your answer with two diagrams—one each for the fuel market and for the car market. c) The government of Country A would like to impose a tax on cars following the above event. Assuming the elasticity of demand for cars is elastic, illustrate with diagrams and explain the car market due to Country A’s government decision. Will the supplier or consumer bear more of the taxes imposed? QUESTION 2 Explain the effects of each of the following on aggregate demand (AD) or short-run aggregate supply (SRAS) by plotting an appropriate AD-AS diagram. Your answer must clearly explain what will happen to the equilibrium level and real GDP when each of the following occurs. a) A decrease in household monetary wealth b) Ringgit Malaysia appreciates c) An increase in the price of capital d) More educated workers are employed e) A nationwide drought lasting for many months f) An increase in labour productivity g) A 2% decrease in business taxes h) Households expect prices to fall
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