a) In the open economy ISLM model, describe the effects of fiscal and monetary ex- pansions with fixed and flexible exchange rates using diagrams. Compare also the effects of a fiscal expansion in an open economy ISLM model with fixed ex- change rates to a fiscal expansion in a closed economy ISLM model. b) Explain the differences of how the labour supply decision is made for households and how it is made for unions. Is it the case that the existence of unions always increases unemployment? c) Describe how the aggregate demand schedule is derived in the ASAD model un- der both fixed and flexible exchange rates. In which of the two can the position of the long-run AD schedule be changed by domestic policy?

a) In the open economy ISLM model, describe the effects of fiscal and monetary ex- pansions with fixed and flexible exchange rates using diagrams. Compare also the effects of a fiscal expansion in an open economy ISLM model with fixed ex- change rates to a fiscal expansion in a closed economy ISLM model. b) Explain the differences of how the labour supply decision is made for households and how it is made for unions. Is it the case that the existence of unions always increases unemployment? c) Describe how the aggregate demand schedule is derived in the ASAD model un- der both fixed and flexible exchange rates. In which of the two can the position of the long-run AD schedule be changed by domestic policy?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

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a) In the open economy ISLM model, describe the effects of fiscal and monetary ex-
pansions with fixed and flexible exchange rates using diagrams. Compare also
the effects of a fiscal expansion in an open economy ISLM model with fixed ex-
change rates to a fiscal expansion in a closed economy ISLM model.
b) Explain the differences of how the labour supply decision is made for households
and how it is made for unions. Is it the case that the existence of unions always
increases unemployment?
c) Describe how the aggregate demand schedule is derived in the ASAD model un-
der both fixed and flexible exchange rates. In which of the two can the position of
the long-run AD schedule be changed by domestic policy?

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