1. In an open economy, the condition for equilibrium in the goods market is different from the condition for a balanced trade account. Explain using words or equations (or both if you wish). Draw a diagram that illustrates a situation where the goods market is in equilibrium while the economy is experiencing a trade deficit.
2. Discuss the impact of an increase in domestic demand arising from an increase in government expenditure on equilibrium output and the trade balance (net exports).Use the relevant diagrams to illustrate your answers.