1. Draw the AA/DD model on a graph. Show on the graph the impact of a permanent increase in money supply. What is the impact on the following variables:
   1. Short-run output
   2. Long-run output
   3. Short-run interest rates
   4. Long-run interest rates
   5. Short-run exchange rates
   6. Long-run exchange rates
   7. Short-run prices
   8. Long-run prices

Would GDP increase when the environment is damaged by toxic spills and then the damage caused

by these spills is cleaned up?

Assume that the US and Mexico both have two different industry sectors. The first sector produces raw materials and the second sector assembles products based on the raw materials. Both sectors in both countries use only two input factors - unskilled labor and skilled labor. Both factors are mobile. The assembly sector uses unskilled labor intensively. The sector that produces raw materials uses skilled labor intensively. Without trade the US has a larger relative supply of raw materials to assembled products than Mexico. Countries do not differ with respect to demand. Answer all following questions using the Heckscher-Ohlin model.

a) Relative prices:

a1) Without trade, is the relative price for raw materials to assembled products, i.e., P_r/P_a, higher in the US or in Mexico? Briefly explain your answer (1-2 sentences are expected).

a2) Assume both countries open for trade. Compare the world relative price for raw materials to assembled products to the relative prices that result without trade in both countries. Briefly explain your answer (1-2 sentences are expected).

b) Exports:

b1) Which good is exported by the US? Which good is exported by Mexico? Briefly explain your answer (1-2 sentences are expected).

b2) Which input factor is abundant in the US? Which input factor is abundant in Mexico?

c) After the North American Free Trade Agreement (NAFTA), there has been an increase in Maquiladoras (i.e., companies where unskilled workers assemble products) in Mexico close to the US border. Opponents of NAFTA in the US argued that the free trade agreement will hurt workers in the US. Do you think this is a valid concern? Explain your answer (4-8 sentences are expected)

Discuss each of arguments presented below for big local governments units:

For big LG units:

1. They could produce more goods- what enhance citizens participation

2. Local stakeholders  are strong enough to be present also at central level

3. Better for creating and forcing local development strategy

4. Lower disproportion among local units- more equal distribution of costs and benefits

5. Arguments for small LG are to idealistic

Questions

1. Explain why decreases in income tax, savings and import spending all increase aggregate demand.

2. How does a change in the interest rate influence the aggregate demand curve?

3. If the value of the Canadian dollar decreases, what is the likely impact on aggregate demand?

4. Why is a shift of the aggregate supply curve to the right like an outward shift of the production possibilities curve?

Dan Murphys (DM) and BWS are the only two liquor chains in Australia that hold the rights to sell a popular new beer named Victoria Sweeter (VS).

Both Dan Murphys and BWS are contemplating between charging a high price ($60 per case) or a low price ($40 per case).

The payoff matrix below shows all possible scenarios and outcomes for the two firms.

* Profits reported in the above table are monthly figures on the Victoria Sweeter (VS) beer only.

Required:

(a) Identify the dominant strategy for Dan Murphys in this game. Clearly explain why this is the dominant strategy. (0.5 + 0.5 = 1 mark).

(b) Identify the non-cooperative* Nash equilibrium for this game. Clearly explain why this is the Nash equilibrium. (1 + 1 = 2 mark).
(* Non-cooperative means that each firm makes their decision independently and does NOT cooperate)

(c) Notice that Dan Murphys and BWS can both earn good profits by both charging $60 per case. Clearly explain why this is NOT the non-cooperative Nash equilibrium. (0.5 + 0.5 = 1 mark).

(d) For Dan Murphys and BWS to both charge $60 per case and earn high profits ($30,000 and $25,000 respectively); a certain form of collusion is needed. While explicit collusion is prohibited and subject to hefty penalties in Australia, what strategy can both firms employ to achieve an implicit, tacit form of collusion? Clearly explain how (1 mark)

Draw a completely labeled supply and demand graph. Show the equilibrium point, the equilibrium price and quantity show using the diagram and explain in words, why a price above the equilibrium price would fall given a free market process and the same for a price below the equilibrium price.

1. Aggregate demand and aggregate supply schedules in Burgazistan are given as follows:

1. What is the short-run macroeconomic equilibrium GDP level? (5 pts)
2. What is the equilibrium price level?

Suppose that the initial equilibrium you found in “a” is at the long run aggregate supply curve and the economy receives a negative demand shock which decreases aggregate demand by 100 at each price level.

3. What is the new short-run macroeconomic equilibrium GDP level?
4. What is the output gap?
5. In the long-run the economy adjusts to the long-run equilibrium point. What is long-run equilibrium GDP level?

Two Ways to Reduce the Quantity of Smoking Demanded Public policy makers often want to reduce the amount that people smoke. There are two ways that policy can attempt to achieve this goal. One way to reduce smoking is to shift the demand curve for cigarettes and other tobacco products. Anti-smoking campaigns on television, mandatory health warnings on cigarette packages and the prohibition of cigarette advertising are all policies aimed at reducing the quantity of cigarettes demanded at any given price. South Africa was a pioneer in banning smoking in public places and in 2009 the laws governing where individuals could smoke were tightened further when bans were introduced on smoking in partially covered areas such as parking lots, verandas, and public walkways and in cars if children under the age of 12 were also in the vehicle. Alternatively, policy makers can try to raise the price of cigarettes through the imposition of taxes on cigarette manufacturers.

Using demand-supply analysis, illustrate and explain the effect on the equilibrium price and quantity of cigarettes if:

1.1. Public policy makers encouraged the reduction of smoking through the non-price methods mentioned in the excerpt and were successful. (10)

1.2 Policy makers encouraged the reduction of smoking through raising the price of cigarettes by imposing a tax on the manufacturers of cigarettes