Question
Assume two countries, Country 1, and Country 2, both produce the same shoes, and economies are similar in nature. If Country 1 imposes and export
Assume two countries, Country 1, and Country 2, both produce the same shoes, and economies are similar in nature. If Country 1 imposes and export ban on shoes, while Country 2 does not impose an export ban, what is the effect of this ban on Country 1 and Country 2 using the IS-LM-FX model. Illustrate with graph. Provide an equation for the demand curve in each country.
(b) What if in the case above, both countries impose an export ban. Again, illustrate with a graph using the IS-LM-FX model. What is the effect on Country 1 and Country 2. Provide equations if needed.
c. What if neither country imposes an export ban. What do their graphs look like now? What are their equations?
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