Discussion
There are three models to consider: 1. the closed economy model, 2. the small open economy, and 3. the large open economy models.
1. Define the models, clearly indicating their underlying assumptions and the relevance of the underlying assumptions.
2. Define the equilibrium conditions for each model, and indicate how the equilibrium conditions differ in each model.
3. Indicate how each model responds to change. In particular, discuss the response in each model to an increase in govenment expenses, and , for the open economy models, assume that domestic economy is initially experiencing a trade deficit. What possible relevance does the indicated scenario have to our current economic situation?
NB: Your discussion should not be a general discussion of the model's response to change but rather should be directed to the specific changes indicated.