a. Explain why the demand for domestic goods curve (ZZ) has a different slope than the...

a. Explain why the demand for domestic goods curve (ZZ) has a different slope than the

domestic demand curve (DD).

b. Using the ZZ/Y and NX graphs, illustrate graphically and explain what effect an increase in

taxes will have on output, exports, imports, and net exports. Clearly label all curves and clearly

label the initial and final equilibria.

c. Suppose there are flexible exchange rates and output is at the natural level, but there is a

trade deficit. The goal of policy is to reduce the trade deficit and leave the level of output at its

natural level. Using the ZZ/Y and NX graphs, illustrate graphically and explain the appropriate

policy mix.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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