Answer all questions
Question 1: Using appropriate diagrams explain and illustrate how the LM curve is derived. (b) Using the AD - AS model, show the effects of an increase in the quantity of money supply on the positions of the AD, AS, IS and LM curves in the long-run. Explain why the curves in your diagrams shift the way they do.
Question 2 a) (i) What are the determinants of imports?
(ii) Clearly explain how each of the determinants affects the level of imports.
(b) Use illustrative diagrams to explain the effects of an increase in the budget deficit on output, composition of output, interest rate, and on the exchange rate under the flexible exchange rate system.
Question 3 (i) Distinguish between demand for goods and the demand for domestic goods, and explain why the demand for domestic goods AA is flatter than the demand for goods curve DD.
(ii) Using illustrative diagrams explain the effects of exchange rate depreciation.
Question 4 (i) Briefly explain the determinants of the goods market equilibrium in an open economy.
(ii) Using appropriate diagram explain the effect of monetary expansion on output and interest rate in a closed economy.
(iii) Using appropriate diagrams explain and illustrate how the IS curve is derived