Suppose the goods-market in an open economy can be represented by the following equations: Y = a + b(Y−T) +I+G+ (X− M) C = a + b(Y-T) Now consider the following scenario: The Federal Reserve, or the central bank of the United States, has implemented a series of interest rates to counter the rising inflation in the country. The United States is also one of the Philippines' top export destinations. Due to the rate hikes, investment and consumption in the USA has decreased, thus reducing the demand for Philippine exports. This reduction has in turn affected the Philippine economy by decreasing exports. Given all the information above, illustrate and explain the effects of the decrease in export demand on the economy. Make sure to include the following: shifts (if any) in the aggregate expenditure curve, the change in equilibrium output (i.e. identify and compar the old and new level of equilibrium output in the graph), and the multiplier effect. Ensure that your graphs are correctly labelled, and that all important lines (45-degree line. Consumptions curve. AE curves) are correctly drawn and placed.
Suppose the goods-market in an open economy can be represented by the following equations: Y = a + b(Y−T) +I+G+ (X− M) C = a + b(Y-T) Now consider the following scenario: The Federal Reserve, or the central bank of the United States, has implemented a series of interest rates to counter the rising inflation in the country. The United States is also one of the Philippines' top export destinations. Due to the rate hikes, investment and consumption in the USA has decreased, thus reducing the demand for Philippine exports. This reduction has in turn affected the Philippine economy by decreasing exports. Given all the information above, illustrate and explain the effects of the decrease in export demand on the economy. Make sure to include the following: shifts (if any) in the aggregate expenditure curve, the change in equilibrium output (i.e. identify and compar the old and new level of equilibrium output in the graph), and the multiplier effect. Ensure that your graphs are correctly labelled, and that all important lines (45-degree line. Consumptions curve. AE curves) are correctly drawn and placed.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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