1. Macroland is recognized as a high-income economy by the World Bank. The country of Macroland is now in a recession. a. Using a correctly labeled graph of the long run aggregate supply, short run aggregate supply, and aggregate demand curves and show each of the following: i. Current price level, labeled PL1 ii. Current output, labelled Y1 b. Assume that Braveland, a major trading partner of Macroland, enters into a recession. i. Explain the effect on Macroland exports to Braveland
1. Macroland is recognized as a high-income economy by the World Bank. The country of Macroland is now in a recession.
a. Using a correctly labeled graph of the long run
i. Current
ii. Current output, labelled Y1
b. Assume that Braveland, a major trading partner of Macroland, enters into a recession.
i. Explain the effect on Macroland exports to Braveland
ii. On your graph in part (a) above, show the effect of the change identified in part (b) (i) above on real output in Macroland.
iii. How would this change in real output in Macroland affect
c. Assume the recession in Braveland causes a decrease in the demand for Macroland dollars in the foreign exchange market. Braveland’s currency is the euro.
i. Explain whether the euro will appreciate,
ii. Draw a correctly labeled graph of the foreign exchange market for dollars and show the effect of the decrease in demand for dollars on the
exchange rate for dollars.
d. Macroland implements a combination of expansionary fiscal and
i. Aggregate demand in Macroland
ii. The price level in Macroland
iii. Explain the effects of expansionary fiscal policies on interest rates in
Macroland.
iv. Explain the effects of expansionary monetary policies on interest rates in Macroland.
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