.

3

Suppose the government is considering an import quota on Japanese cars, use the appropriate diagrams (hint: market for loanable funds and market for foreign currency exchange) to analyze how this policy affects national saving, domestic investment, net capital outflow, the Interest rate, the exchange rate, and the trade balance?

4.

Draw the AD-SRAS-LRAS diagram for the economy starting in a long-run equilibrium. Now suppose that an increase in government spending causes aggregate demand to rise. Use your diagram to show what happens to the output and the price level in the short run and long run, respectively.