For 2012 subsidy question how do we read the graph. For 2011, how is c the answer?
For question 18, the answer is A. The size of the subsidy is the vertical distance between the two supply curves -S1 price is $10, and and S2 price is 8, so the price per towel is a subsidy of $2
For 2011, you can go through the process of elimination. The terms of trade has declined, so to counteract this economic growth needs to be boosted another way (I'm assuming domestically as well?? Someone correct me if I'm wrong)
A would do the opposite, and contract the economy
B would also contract (Taxation is a leakage)
D would make the price of imports more expensive, and wouldn't do much in terms of the domestic economy
C is the right answer because an increase in discretionary spending can boost particular areas of the economy (employment etc) and boost growth. And Government expenditure is an injection, so this increase would stimulate the economy, reducing the impact of the deteriorating terms of trade
Hope that makes sense