ECON 3HH3 Chapter 10: International Trade - Ch. 10,11 Written.pdf

Aggregate Supply: Yst = α + βrt + ηt

Aggregate Demand: Cdt = γ - δrt + θMt

Money Demand: Mdt = pt [σpt + ωYt - χrt + εt]

Money Supply: Mst = Mt

Begin by assuming that θ = 0 and σ = 0.

Prove the existence of the Classical Dichotomy mathematically. Consider (separately) the effects of changes in each of η, ε, and M.

When the initial budget line labeled RT (note: RT is the initial line) in Figure 8.10 shifts to RS, the income effect is illustrated by the move from point A) B) C) D) E) a to d btod c to d a toc d to a

21. Figure 8.10 Quantity of Good Quantity of Good X When the initial budget line labeled RT (note: RT is the initial line) in Figure 8.10 shifts to RS, the substitution effect is illustrated by the move from point A) B) a to d btod cto d a to C d to c D) E)