a) Using the Y-ZZ and NX graphs, graphically illustrate and explain what effect an increase in foreign output (Y*) will have on output, exports, imports, and net exports.Clearly label all curves and clearly label the initial and final equilibria.

b)Suppose a country is currently experiencing a situation where output is above the full employment level of output and a trade deficit. The government wants to achieve two goals of full employment output and balanced trade. Given this information and your understanding about Marshall-Lerner Condition, what type of exchange rate and/or fiscal policy can be employed by the government of this country to achieve simultaneously both the goals? Support your explanation using a combination of Y-ZZ demand and the NX graph.

c) Explain why the phenomenon of J-curve occurs in an economy? (Note: you may use appropriate graph to support your explanation.)