3) Show AD curve for closed and open economy and derive trade balance (NX) curve from there. Explain graphically how an expansionary fiscal policy may not help a low income country eliminate trade deficit. What should be done in such a case? Clearly indicate the changes.

What determines the size of a countrys trade deficit?

Imagine an economy in which Ricardian equivalence holds. This economy has a budget deficit of 50, a trade deficit of 20, private savings of 130, and investment of 100. If the budget deficit rises to 70, how are the other terms in the national saving and investment identity affected?

Explain what will happen in a nation that tries to solve a structural unemployment problem using expansionary monetary and fiscal policy. Draw one AD/AS diagram, based on the Keynesian model, for what the nation hopes will happen. Then draw a second AD/AS diagram, based on the neoclassical model, for what is more likely to happen.

Why are inflationary dangers lower in the high-income economies than in low-income and middle-income economies?

What does it mean to say that a currency appreciates? Depreciates? Becomes stronger? Becomes weaker?

Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1 of Germanys GDP; private savings is 20 of GDP; and physical investment is 18 of GDP. Based on the national saving and investment identity, what is the current account balance? If the government budget surplus falls to zero, how will this affect the current account balance?

According to Table 19.7, how often have recessions occurred since the end of World War II (1945)?

For each of the following, indicate which type of government spending would justify a budget deficit and which would not. Increased federal spending on Medicare Increased spending on education Increased spending on the space program Increased spending on airports and air traffic control

What is the theory of Ricardian equivalence?