Question 1a:

Write a brief paragraph describing how the world pricelevel can shift from P₀ to P₁ in aneconomy.

Question 1b:

What will the trade balance be after the world pricelevel moves to P₁ ? Write in a brief paragraph what iscausing the trade balance position.

Question 1c:

Over time what is likely to happen to the world pricelevel and the trade balance? Write a brief paragraph describingwhat is causing this movement.

Question 1d:

What can prevent the world price level from moving inthe way you described in question (C)? Write a brief paragraphdescribing the mechanics of how the world price level is preventedfrom moving in the way you described in question (C).

Price 8 P Qo Domestic supply of goods Swo Q SW Domestic demand of goods