1. Consider an open economy that is on a flexible exchange rate system, where C = C(YD), r=I(Y,i),= G, NX = NX(1 ,Y* ,.E), and Md =YL(i)

a. Show the short run effects of a decrease in the demand for goods and services caused by the pandemic using the Five-Figures Diagram we drew in class: goods market, money market, the IS-LM curves, the interest parity condition curve, and the AS-AD curves. Explain your answer. [10 marks]

b. How about the effects in the medium run? Assume that before the pandemic. output was at its natural level. To answer this question, draw the Two-Figures Diagram: the IS-LM curves and the AS-AD curves. Explain your answer. [4 marks]

c. While demand for oil is still lower than normal, the price of oil has recovered to its pre-pandemic levels having hit an all-time low last year. Suppose the price of oil will keep rising. Use the AS-AD curves to show what will happen in the economy. starting with the new medium run equilibrium you found in part b. Explain your answer. [5 marks]

d. What policy action will reduce the effects of the increase in the price of oil? If any? [2 marks)

2. Consider an open economy that is on a flexible exchange rate system, where investment is not responsive to the interest rate. C = C(YD), / = 1(Y), G= G, NX = NX(Y,Y* , E), and Md =YL (i) a. Derive the IS and AD curves for this economy? [8 marks]

b. In response to the COVID-19 crisis. suppose that the government of this economy increases transfer payments to help people struggling during the pandemic. Show the short run effects of this policy using the Five-Figures Diagram: goods market, money market. the IS-LM curves, the interest parity condition curve, and the AS-AD curves. Explain your answer. [8 marks]

c. How about the effects of this policy in the medium run? Assume that before and after the changes, the economy is still in a recession (i.e. its output is below its natural level). To answer this question, draw the Two-Figures Diagram; the IS-LM curves and the AS-AD curves. Explain your answer. [4 marks]

d. Do you think this policy is sufficient to compensate for damage done to the economy's production and consumption of goods and services during the pandemic? Explain your answer. [2 marks]

3. Consider an open economy that is on a flexible exchange rate system, where money demand does not depend on income and is only a function of interest rate. C = C(YD), / ./(Y, G= G, NX = NX , and Md = L (i) a. Derive the LM and AD curves for this economy? [8 marks]

b. In response to the COVID-19 crisis, suppose that the central bank of this economy buys government bonds to provide support to the economy during the pandemic. Show the short run effects of this policy using the Five-Figures Diagram: goods market, money market, the 1S-LM curves. the interest parity condition curve, and the AS-AD curves. Explain your answer. [8 marks]

c. How about the effects of this policy in the medium run? Assume that before the changes. the economy was at the natural level of output. To answer this question, draw the Two-Figures Diagram: the 1S-LM curves and the AS-AD curves. Explain your answer. [4 marks]

d. The more the central bank buys. the lower the interest rates that the government has to pay on new borrowing, and the more the government can borrow. Does this mean the government can spend as much as it wants and protect the economy from damage done by the virus? Explain your answer. [2 marks]

1. Consider an open economy that is on a flexible exchange rate system, where o = C(13)), I: I(Y,), e = E, NX = NX(Y, Y*,E), and M\" = FL(:') a. Show the short run effects of a decrease in the demand for goods and services caused by the pandemic using the Five'Figures Diagram we drew in class: goods market, money market, the {S-LM curves, the interest parity condition curve. and the AS-AD curves. Explain your answer. [if] marks] I}. How about the effects in the medium run? Assume that before the pandemic, output was at its natural level. To answer this question, draw the TwowFigures Diagram: the Iii-[M curves and the A5~AD curves. Explain your answer. [4 marks] c. While demand for oil is still lower than nomal, the price of oil has recovered to its prevpandemic levels having hit an allvtime low last year. Suppose the price of oil will keep rising. Use the ASvADcurves to show what will happen in the economy, starting with the new medium run equilibrium you found in part b. Explain your answer. [5 marks] d. 1ll'll'hat policy action will reduce the effects of the increase in the price of oil? If any? [2 marks] 2. Consider an open economy that is on a flexible exchange rate system. where investment is not responsive to the interest rate. 0 = C(13)). I: I(Y). G =5. HI = NX(Y.Y*,E), {111de = YL() a. Deriye the IS and AD cunres for this economy? [8 marks] I}. In response to the CDVlD-il? crisis. suppose that the goyemment of this economy increases transfer payments to help people struggling dun'ng the pandemic. Show the short run effects of this policy using the Five-Figures Diagram; goods market, money market. the {ELM curyes. the interest parity condition curye. and the AS-ADcuryes. Explain your answer. [3 marks] c. How about the effects of this policy in the medium run? Assume that before and afterthe changes. the economy is still in a recession [i.e. its output is below its natural level]. To answer this question. draw the TworFigures Diagram; the IS- LMcunres and the AS-ADcuryes. Explain your answer. [4 marks] d. Do you think this policy is sufficient to compensate for damage clone to the economy's production and consumption of goods and services during the pandemic? Explain your answer. IE marks] 3. Consider an open economy that is on a flexible exchange rate system, where money demand does not depend on income and is only a function of interest rate. 0: C(13)). I=I(Y,i). o = E. NI = NX(Y.Y*,E), {111de = 1.0-) a. Derive the 1M and AD curves for this economy? 18 marks] l}. in response to the COVJD-l'? crisis. suppose that the central bank of this economy buys government bonds to provide support to the economy during the pandemic. Show the short run effects of this policy using the FivevFigures Diagram: goods market. money market. the i5~M curves, the interest parity condition curve. and the ASwAD curves. Explain your answer. [El marks] :2. HovI.r about the effects of this policy in the medium run? Assume that before the changes. the economy was at the natural level of output. To answer this question, draw the Two-Figures Diagram; the IS-LM curves and the AIS-AD curves. Explain your answer. [4 marks] d. The more the central bank buys. the lower the interest rates that the govemment has to pay on new borrowing, and the more the government can borrow. Does this mean the government can spend as much as it wants and protect the economy from damage done by the virus? Explain your answer. [2 marks]