1 the basic Keynesian model of income determination - so called circular flow - posits current income as the sole determination of the components of demand (c and I in the absence of government spending, g) part
a) explain this model, including the effects of adding G; part
b) how are these affects modified when we include both a (flat-rate) tax on income, and a marginal (= average) propensity to import 'f'?
2 Define and explain the conditions underlying "short-run" analysis, and within this SR context, discuss the relative effectiveness of expansionary fiscal and monetary in a "closed" economy (ie. where domestic "goods" and "money" markets are in equilibrium and the rest of the world is ignored).
3 In an "open" economy, explain the concepts of and relationship between the "balance of payments" and the market for foreign exchange (forex). Using these, derie and explain the third market equilibrium condition expressed in the so called "FE" curve, including cases of imperfect capital mobility. Finally, analyze the simple case of expansionary fiscal policy for a country with "PCM" under a floating exchange rate.
4 Suppose that Canada, for example, maintains a fixed exchange rate. Discuss what this means for the conduct of Canadian monetary policy, and analyze the cases in which the U.S. undertakes an expansionary fiscal policy (as in question 3), and/or an expansionary monetary policy on the Canadian economy.
5 Discuss the criticisms leveled by so called "classical" economists at the Keynesian model described above, from the initial simplistic responses that increased government spending would crowd out private investment, while wage cuts would suffice instead, to more sophisticated views of Pigou and Friedman.