In August 2020, Haiti and the Dominican Republic, two Caribbean economies, were hit by hurricane Laura, experiencing a negative aggregate supply shock as a result. (a) Haitians assume this is a one-time shock, so it is expected to have no wealth effects. Use the labor market and the production function to describe the effects on employment, output, and the real wage. (b) In the Dominican Republic the shock is believed to be permanent, so there is a negative wealth effect. Redo (a). What are the differences?

Faced with high levels of government debt, European Union economies have been reducing government expenditure and/or raising taxes. What are the effects of these "austerity policies" on EU national saving, S? For each of the following three cases, derive the expected effects on EU and US interest rates, saving, investment, and net exports: (a) EU is a closed economy; (b) EU is a small open economy; (c) the world consists of two large economies: the EU and the US.