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Q. Suppose that the world consists of only two countries, A and B, of relatively equal sizes. The world interest rate in such a model is some average of the autarkic (no trade) interest rates in each of the two countries.a. Draw "parallel" loan able funds markets for the two countries and show the position of the world interest rate. b. Suppose country A enacts laws that induce people to save more. Show the effects of such laws on each country's domestic amounts saved and invested. c. In the currency-exchange diagrams for both countries, show the effect of country A's savings policies on both countries' exchange rates and net exports. Compare the effects of an aggregate-demand-induced recession with an aggregate-supply-induced recession. How would you recognize that a recession is induced by demand or supply? What policies would be appropriate in the first case and what in the second?
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In country B the opportunity cost of 100 gallons of beer is 0.95 tons of cereal. Both countries can experience gains from trade if the exchange rate for a ton of cereal is 96 gallons of beer
Using this demand function, find the total revenue function. What is the shape of the total revenue function.
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