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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.
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2. If a country's growth is biased in favor of its import, this should unequivocally improve its terms of trade and its economic welfare. Discuss. Answer: Suppose the Japan
Q. Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD and where both the output and asset markets are out of equilibrium. Explain what will h
Q. Explain the effects of a permanent increase in the U.S. money supply in the short run and in the long run. Assume that the U.S. real national income is constant. A raise in
Q. Discuss the main factors affecting the position of the AA schedule. Answer: Revolutionize in the domestic money supply changes in the domestic price level changes in
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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
Q. One reason international trade has a powerful effect on the distribution of income within countries is that some factors are "specific", and therefore cannot move costlessly fr
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