Let's imagine all major countries in the world are engaged in a trade war. Assume the trade war's main effect is to decrease the benefits of competitive advantage, so that countries no longer specialise in goods as much as before and, as a result, the production function shifts down because of the loss of gains from trade. How is this likely to affect the curves in the IS-LM model. In doing so:

i. Analyse the long-run impact of the trade war in a classical model, assuming that labour supply is not affected. [2 marks]

ii. Consider the short-run impact in a Keynesian model, in which the tariffs initially cause reduced investment by firms in exporting industries and reduced consumption by consumers facing lower expected future earnings. [2 marks]