Question

I. The economy of Zarland is operating below the full-employment level of output with a balanced budget. (a) Draw a correctly labeled graph of short-run aggregate supply, long-run aggregate supply, and aggregate demand, and show each of the following. (Gi) The country's current equilibrium output and price level, labeled Yj and PL1. respectively (ii) The full-employment output, labeled Yf (b) Ir Zarland increases government expenditures and taxes by equal amounts, can aggregate demand increase? Explain. (c) If Zarland decides to pursue an expansionary monetary policy, what open-market operation should the central bank undertake? (d) Using a correctly labeled graph of the money market, show the sh you identified in part (c) on the interest rate. run effect of the open-market operation the supply of (c) As a result of the interest rate change associated with the expansionary monetary poli arland's currency in the foreign exchange market increase, decrease, or remain the same in the short run? Explain. (f) B ased on your answer in part (e), will the value of Zarland's currency in the foreign exchange market increase, decrease, or remain the same in the short run? (g) Following the change in the value of Zarland's currency that you identified in part (D, will Zarland's exports increase, decrease, or remain the same in the short run? Explain

Answer 1

ate Supply face CP) Swpply CSRA S Pl AD

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