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Question 4 a. What is the relationship between net exports and imports? [2 marks) b. Suppose an economy that is initially at full employment faces
Question 4 a. What is the relationship between net exports and imports? [2 marks) b. Suppose an economy that is initially at full employment faces a tremendous drop in imports. i. Discuss (with the aid of aggregate output market and money market diagrams) the short run effect on output, unemployment, general price level and interest rate with a tremendous drop in imports. (9 marks)\" ii. Discuss (with the aid of aggregate output market diagram) what kind of scal policy can be adopted to restore the economy back to the full employment equilibrium. (7 marks) c. Explain how an increase in the price level changes interest rates. How does this change in interest rates lead to changes in investment and net exports? (7 marks)
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