For the following, you will use the two graphs that we have developed for the small open economy (SOE): the graph that links domestic S and I to the global interest rate r*, and the graph that links the NX (X-M) demand function for the small open economy with the real exchange rate.

For each scenario below, begin with a trade account in balance, (X=M) for the SOE.

Now, trace through the impact (using the two graphs for the SOE) for each of the following cases and show:

Changes in the SOE:

(1)to the NFI (net foreign investment - or net capital inflow or outflow)? (2)to the position of the small open economy being a borrower or a lender in the international capital markets? (3)to the trade balance (NX)? (4)to what would you normally expect to occur to the relative price levels in the small open economy versus the ROW that would help explain the movements in the two graphs?

(a) A rise in investment demand in the small open economy.

(b) A rise in investment demand in the rest of the world economy (ROW).

(c) A rise in the marginal propensity to consume in the ROW.

(d) A rise in taxes in the small open economy.

(e) A sudden deep economic recession in the ROW.

X InQuizitive: Chapter 26: The Aggregate Demand-Aggregate Supply Model e Page 847 26.4. How does the aggregate demand-aggregate supply model help us understand the economy? Que supply model? Which of these are conditions for long-run equilibrium in the aggregate demand-aggregate YOU C Correct Answer(s) Long-run aggregate supply equals aggregate Curr demand. You mutt ana Short-run aggregate supply equals aggregate demand. Question H 9 M acerD Question 8 2 pts GDP/Output Identify the curves/points 1: [ Select ] [ Select ] [ Select ] * IV: [ Select ] V: [ Select ] Options for Blanks! 1. Aggregate Demand 2. Potential Output 3. Actual Output 4. Short Run aggregate supply 5. Short Run aggregate demandQUESTION 9 According to the Federal Reserve, an increase in the money supply will: Reduce interest rates and increase aggregate demand. Reduce interest rates and decrease aggregate demand. Raise interest rates and increase aggregate demand. Raise interest rates and decrease aggregate demand. QUESTION 10 Expansionary monetary policy will be ineffective if: investors have low expectations of future sales. consumers are willing to hold additional money. banks are unwilling to give loans. Oall of the above.QUESTION 5 True or False : A recessionary gap can be caused by consumers who spend more than the earn. True False QUESTION 6 An economic expansion accompanied by high inflation can most likely be attributed to a(n) . everything else remaining unchanged. Decrease in aggregate supply Increase in aggregate demand O Increase in aggregate supply Decrease in aggregate demand QUESTION 7 True or False: At a higher price level, we can expect real incomes to remain constant. O True O False