(2) Analyze the impact of wheat export subsidies on the country's welfare. Is it a good policy?

22. In a small open economy with a floating exchange rate, if the government adopts an expansionary fiscal policy, in the new short-run equilibrium: (A) income and the exchange rate will both rise. (B) the exchange rate will rise, but income will remain unchanged. (C)income will rise, but the exchange rate will remain unchanged. (D) both income and the interest rate will rise. (continue to the next page)

(1) What price would this new drink sell for it sold in a competitive market?

(2) What is the monopoly price of this new drink?

(3) What price would this new drink in the long run if the industry is a Cournot duopoly?

(4) What price would this new drink in the long run if the industry is a Bertrand duopoly?

(1) Draw a supply-and-demand diagram of the market for the good market with subsidize.

(1) Suppose the central bank’s policy is to adjust the money supple to maintain the interest rate at 4%, so r=4. Solve for GDP.

(2) How does GDP compare to the full-employment level? Is there a gap?

(3) Holding everything else unchanged, what change in government purchases would restore full employment?

(4) Holding everything else unchanged, what change in interest rate would restore full employment?

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