An economy has zero net exports. Otherwise, it is identical to the economy described in Problem 7.

(LO3 , LO4

, LO5)

a. Find short-run equilibrium output.

b. Economic recovery abroad increases the demand for the country’s exports; as a result, NX rises to 100.

What happens to short-run equilibrium output?

c. Repeat part

b, but this time assume that foreign economies are slowing, reducing the demand for the country’s exports, so that NX 5 2100. (A negative value of net exports means that exports are less than imports.)

d. How do your results help to explain the tendency of recessions and expansions to spread across countries?