{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

RQ_Solution_Ch_17

# RQ_Solution_Ch_17 - ECMC61 Chapter 17 Review Questions...

This preview shows pages 1–3. Sign up to view the full content.

ECMC61 – Chapter 17 Review Questions Answer Key Question 1: Problem #2 Suppose the government imposes a tariff on all imports: A tariff is a tax on the consumption of imports an imposition of tariff will increase the demand for domestic goods because the prices of imports increase. This leads to higher aggregate demand If the imposition of tariff is temporary: Tariff AD DD shifts to the right to DD(AD 1 ). Since the tariff is temporary, there is no change in expectation, i.e., E e remains unchanged. Point B is the short-run equilibrium: Y to Y 1 E = E 1 (DC appreciates ) Overall, CA (the initial in CA due to the import tariff is only partially offset by the in CA due to real appreciation of DC) If the imposition of tariff is permanent: Tariff AD DD shifts to the right to DD(AD 1 ). Since the tax relief is permanent, agents expects DC to appreciates, i.e., E e decreases from, E e,0 to E e,1 . An expected appreciation of DC shifts AA schedule shifts downward to AA(E e,1 ). Point C is the short-run equilibrium: Y = Y FE (no change) E = E 2 ( DC appreciates ) Overall CA does not change (the initial in CA due to the import tariff is fully offset by the in CA due to real appreciation of DC) E DD(AD 0 ) DD(AD 1 ) A E 0 E 1 B E 2 C AA(E e,1 ) AA(E e,0 ) Y Y FE Y 1 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Question 2: Problems #4 Suppose there is a permanent decrease in a country’s aggregate demand: A fall in AD will shift the DD curve to the left from DD(AD 0 ) to DD(AD 1 ).
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 6

RQ_Solution_Ch_17 - ECMC61 Chapter 17 Review Questions...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online