2. Assume the economy of Brazil, a longtime trading partner with the United States, is in long-run equilibrium with a zero current account balance. Brazil can produce 40 units of coffee or 10 units of cars with its given resources.

(a) Assuming a constant opportunity cost, draw a correctly labeled production possibilities curve depicting Brazil’s economic tradeoffs placing cars on the horizontal axis and computers on the vertical axis.

(b) Calculate the opportunity cost of 1 unit of coffee in Brazil.

(c) Assume there is an increase in exports of coffee to the United States from Brazil. Draw a correctly labeled aggregate supply and aggregate demand graph and include each of the following: (i) Brazil’s economy at its original point. Label the original price level PL1 and output as Y1 . (ii) The effect of the exports on its economy. Label the new equilibrium price level and output PL2 and Y2 respectively.

(d) What is the effect of the exports on Brazil’s current account?