1. {10 points} What are the key channels by which fiscal policy affects output in a closed versus open economy? Using the models studied in class, discuss what is meant by "crowding out", and how the crowding out effect works in an open economy. How does this effect differ to the way it works in a closed economy? To what extent does the efcacy of scal policy (Le. in affecting output] depend on the type of exchange rate regime? 2. [10 points} In the data, the trade deficit appears to be procyclical (- take this as a statement of fact}. Define what is meant by a trade deficit and by the trade decit exhibiting procyclical behavior. Using one of the open economy models studied, use a diagram to outline a possible explanation for the procyclical behavior of the trade decit. Note: you may include a brief explanation to accompany your diagram to detail the mechanism by which we are able to obtain a procyclical trade decit. 3. (11] points] France and Poland each have one worker whose monthly linear Production Possibility Frontier indicates the following production possibilities: Computers {Cl Grain [G] a} {lpt} France's opportunity cost of G in terms of units of C equals ? b} l1pt} Poland's opportunity cost of G in terms of units of C equals ? For the J\\'roliowing parts, please complete the questions by filling in the blank, andr responding to remainder of the question: c} {2 pt) Poland's comparative advantage is in because: d} l3pt} If France and Poland decide to trade, will be the exporter of 6 while will be the importer because: a) [3 pts] If the economies choose to trade, the world relative price of goods must be in order for trade to be mutually beneficial, because