1. Macroland is recognized as a high-income economy by the World Bank. The country of Macroland is now in a recession. a. Using a correctly labeled graph of the long run aggregate supply, short run...

1. Macroland is recognized as a high-income economy by the World Bank. The country of Macroland is now in a recession.

a. Using a correctly labeled graph of the long run aggregate supply, short run aggregate supply, and aggregate demand curves and show each of the following:

i. Current price level, labeled PL1

ii. Current output, labelled Y1
b. Assume that Braveland, a major trading partner of Macroland, enters into a recession.

i. Explain the effect on Macroland exports to Braveland
ii. On your graph in part (a) above, show the effect of the change identified in part (b) (i) above on real output in Macroland.
iii. How would this change in real output in Macroland affect unemployment in Macroland?
c. Assume the recession in Braveland causes a decrease in the demand for Macroland dollars in the foreign exchange market. Braveland’s currency is the euro.

i. Explain whether the euro will appreciate, depreciate, or remain unchanged against the dollar.
ii. Draw a correctly labeled graph of the foreign exchange market for dollars and show the effect of the decrease in demand for dollars on the

exchange rate for dollars.
d. Macroland implements a combination of expansionary fiscal and monetary policies. What will be the effect of these policies on each of the following?

i. Aggregate demand in Macroland

ii. The price level in Macroland
iii. Explain the effects of expansionary fiscal policies on interest rates in

Macroland.
iv. Explain the effects of expansionary monetary policies on interest rates in Macroland.