Assume Country Z is operating above full employment.

1. Identify one fiscal policy tool that can solve the problem.
2. Using a correctly drawn/labeled AD/AS graph and loanable funds graph, show and explain how the policy you suggested in (a) will affect each of these in the short-run:

output and employment

price level

interest rates

1. Explain how the policy you identified in (a) will affect each of the following:

International value of Country Z's currency

Country Z's exports (based on the changing value of the dollar)