ps10 - Economics 202 Principles of Macroeconomics Name...

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Economics 202 Name: _______________ Principles of Macroeconomics Professor Melick Problem Set #10 Due Friday May 2, 2008 1. Using the attached Figure 1 and the assumption of a classical model with misperceptions for an open economy illustrate and explain the short-run and long-run effect on only the domestic economy of a sharp drop in GDP in the rest of the world ( ) For Y . In each of the six graphs show only three points, an initial general equilibrium before the change in For Y (labeled point A), the short-run equilibrium after the change in For Y (labeled point B), and the new long-run general equilibrium (labeled point C). Discuss what happens to the current account, real exchange rate and nominal exchange rate for the domestic economy. For consistency, start the domestic economy off with a current account deficit.
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2. Using the attached Figure 2 and the assumption of a classical model with misperceptions for an open economy illustrate and explain the short-run and long-run effect on
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This note was uploaded on 05/13/2010 for the course ECON 323 taught by Professor Jakes during the Spring '10 term at Alcorn State.

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ps10 - Economics 202 Principles of Macroeconomics Name...

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