Question: 1) Using an appropriate diagram explain why the consumers resident in a country benefit from international trade with other countries.
2) How can government's act to reduce unemployment through monetary or fiscal policy? Why might such action be considered a bad idea?
3) Explain why a reduction in export expenditure might result in the economy temporarily operating at less than potential GDP. Explain why this is temporary. If the government considers that operating at less than potential GDP - even for a short period - is unacceptable, explain how government policy might be used to move the economy to potential GDP.
4) Explain why a stable economic equilibrium requires the economy to be operating at an output level at which aggregate demand curve, the long run aggregate supply curve and the short run aggregate supply curve all intersect.