Consider two economies: one in which the labor supply curve is very steep (economy A), and one in which it is very flat (economy B). Assume that both economies have identical aggregate demand curves. Suppose that the two economies are hit by identical exogenous increases in the demand for their exports. Compare the effects of this shock on each of the following variables in the two economies:

a.Real GDP and the price level.

b.The level of employment and the real wage.

c.Do net exports increase or decrease in these economies as the result of this shock? Explain why.