Answer TWO questions from EACH section. All questions carry equal marks. All questions carry equal marks. Interpret your results. Explain how the outcome will be affected if one firm behaves as the quantity leader while the other responds as the follower.
All questions carry equal marks.
Demonstrate by use of an appropriate macroeconomic model the effects in both short and long run of an expansionary fiscal policy. Use a Mundell-Fleming analysis to show that the effectiveness of monetary and of fiscal policy depends on the degree of capital mobility and the exchange rate regime. Explain the meaning of Ricardian equivalence.