Policy effects in an open economy Given the information in the previous paragraph, determine which aggregate demand curve must be the initial AD curve, the new AD curve if the

economy is closed, and the new $AD$ curve if the economy is open. $($Hint: The number labels on the graph are for identification only and do not imply

any particular order of shifts.$)$

Fill in the following table with your results. Assume that each curve $,$ and $\{$:$A{D}_2)$ should be selected only once.

Now complete the same analysis for the aggregate supply curve. Note here that each curve $(A{S}_0$ and $\{$:$A{S}_1)$ may be selected more than once.

In an open economy, this kind of fiscal policy moves the economy from point

to point

The following graph shows various aggregate demand $(AD)$ and aggregate supply $(AS)$ curves for the United States. This question will analyze the effect of either fiscal or monetary policy on an economy with mobile capital and floating exchange rates.

Suppose the government decides to cut taxes.

Complete the following paragraph to show the effects of such a policy in an open economy.

Because this is r$\_$ fiscal policy, aggregate demand will $,$ which causes both real GDP and the price level to $.$ In a closed economy, this is the total effect of such a policy. However, in an open economy, it is necessary to consider changes to interest rates and thus the exchange rate. Since this kind of fiscal policy interest rates, this means that American securities become attractive to foreign investors. This currency. $-q,$ aggregate demand and aggregate supply.