Now consider the following data for Italy (IMF, International Financial Statistics, National Accounts): euro, billions Year GDP C EX IM 2000 1,242 752 308 2019 1,788 1,075 513 510

(d) Calculate the marginal propensities to consume (b) and import (m) over the 2000-2019 period. Suppose covid-19 causes a sharp deterioration in Italian consumer confidence, reducing exogenous consumption, a, by 90 billion (5% of 2019 GDP).

(e) Suppose Italy is a closed economy. How would this drop in consumer confidence affect output? What fiscal policy (change in G) would prevent this output effect?

(f) Now suppose Italy is open. How would the drop in consumer confidence affect output and the trade balance? What fiscal policy is needed now to neutralize the output effect?