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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. Using an equation, explain why governments prefer to avoid excessive current account surpluses. Answer: This pursue from the national income identity S = CA + I which says
Q. What can you learn from the figure below, which depicts the US GNP and its components for the year 1997? Answer: The U.S. GNP is about 8 trillion expenditure represents
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