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Consider the multiplier model we have studied in class. Assume that the economy is initially in equilibrium and that real income is $180. The marginal propensity to expend is 0.66. If autonomous exports have just fallen by $20, what will happen to equilibrium income? What about unemployment? Show the adjustment process to the new equilibrium using a graph.
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America can produce 100 shirts or 20 computers and China can produce 100 shirts or 10 computers. With trade, who exports shirts? Which country benefits from the trade?
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