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Q. Using a figure, show that under full employment, a temporary fiscal expansion would increase output (over-employment) but cannot increase output in the long run.
Answer: A temporarily monetary expansion will move the economy from DD1 to DD2 and output increases. A permanent financial expansion will as well shift the AA curve to the left and down. The small exchange rate appreciates that is E decreases.
Q. Other things being equal, a rise in a country's terms of trade enhances its welfare. What could happen if we relax the ceteris paribus assumption, and allow for the law of dema
Q. How did the international monetary system influence macroeconomic policy-making and performance during the interwar period (1918 - 1939)? Answer: Governments efficiently sus
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Q. "The balance of payments is always balanced." Discuss. Answer: True each international transaction automatically enters the balance of payments twice once as a debit and o
Q. Why do governments prefer to avoid excessive current account surpluses? Or, why are growing domestic claims to foreign wealth ever a problem? Answer: On behalf of a given l
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Q. In autarky, Country P was producing at point 5. With trade, could its production point be found above or below point 5? Explain why. What must happen in the K/L intensity ratio
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