Question 1

A nation in recession reduces both the personal and business marginal tax rates. What is the likely short-term effect on a) government deficit (or surplus), b) aggregate supply, c) aggregate demand, and d) GDP price index?

Question 2

The consensus of economists and business analysts is for faster economic growth in the U.K. relative to the U.S. Firms in the U.K. are also projecting excellent profits. Some forces will depreciate the pound while others will it to appreciate. Explain these opposing forces and how each influences the exchange rate with the US dollar.

Question 3

What must a country that runs a persistent current account deficit do to reduce this imbalance?

Question 4

Explain the effect of expansionary monetary policy on the real risk-free interest rate (R), real GDP, and the price index (PI).

Question 5

Two countries trade freely. In the long-run, why will the real exchange rate tend towards one?