Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 10, Problem 10CQ
To determine
Identify the effects of an increase in the aggregate
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The economy of Ashville is currently in a macroeconomic equilibrium, as depicted by point E, in
the accompanying figure.
The main component of Ashville's exports consist of the raw materials that it derives from its
natural resources.
Suppose that the world demand for raw materials decreases sharply, resulting in a decrease in
the price of raw materials throughout the world.
The decrease in the world demand for raw materials, which is the major source of Ashville's
exports, will
the level of aggregate demand in Ashville, causing a
▼shift in
the AD curve.
The decrease in the world demand for raw materials, which implies a decrease in the level of
factor prices, leads to
in the unit cost of production in Ashville, causing a
7 shift in the AS curve.
Use the three-point curve drawing tool twice to draw and label new AS and AD curves that
shows the effect of this shock on Ashville's economy.
Carefully follow the instructions above, and only draw the required object.
The overall effect of…
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A) An immediate improvement in the trade balance due to Increased export revenues.
B) A decrease in inflation as higher oil prices lead to reduced consumer spending.
C) An increase in the general price level and potential deterioration of the trade balance.
D) Stabilization of the currency value due to increased demand for domestic currency to purchase oil.
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by saving less
by paying more taxes
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Chapter 10 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- When incomes rise, imports tend to a) behave in an unpredictable manner b) fall c) rise d) stay the samearrow_forwardSuppose that the U.S. economy is at full employment when strong economic growth in Asia increases the demand for U.S.-produced goods and services. How the U.S. price level and real GDP will change in the short run?arrow_forwardThe following graph shows an increase in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the right from AD1 to AD2, causing the quantity of output demanded to rise at all price levels. For example, at a price level of 140, output is now $400 billion, where previously it was $300 billion. 170 160 150 140 - 130 AD2 120 110 AD, 100 90 100 200 300 400 500 600 700 800 OUTPUT (Billions of dollars) The following table lists several determinants of aggregate demand. Complete the table by indicating the change in each determinant necessary to increase aggregate demand. Change Needed to Increase AD Wealth Taxes Interest rates The value of the domestic currency relative to the foreign currency PRICE LEVELarrow_forward
- Macroland is recognized as a high-income economy by the World Bank. The country of Macroland is now in a recession. Using a correctly labeled graph of the long run aggregate supply, short run aggregate supply, and aggregate demand curves and show each of the following: Current price level, labeled PL1 Current output, labelled Y1 Assume that Braveland, a major trading partner of Macroland, enters into a recession. Explain the effect on Macroland exports to Braveland On your graph in part (a) above, show the effect of the change identified in part (b) (i) above on real output in Macroland. How would this change in real output in Macroland affect unemployment in Macroland? Assume the recession in Braveland causes a decrease in the demand for Macroland dollars in the foreign exchange market. Braveland’s currency is the euro. Explain whether the euro will appreciate, depreciate, or remain…arrow_forwardMacroland is recognized as a high-income economy by the World Bank. The country of Macroland is now in a recession. Using a correctly labeled graph of the long run aggregate supply, short run aggregate supply, and aggregate demand curves and show each of the following: Current price level, labeled PL1 Current output, labelled Y1 Assume that Braveland, a major trading partner of Macroland, enters into a recession. Explain the effect on Macroland exports to Braveland On your graph in part (a) above, show the effect of the change identified in part (b) (i) above on real output in Macroland. How would this change in real output in Macroland affect unemployment in Macroland? Assume the recession in Braveland causes a decrease in the demand for Macroland dollars in the foreign exchange market. Braveland’s currency is the euro. Explain whether the euro will appreciate, depreciate, or remain…arrow_forwardMacroland is recognized as a high-income economy by the World Bank. The country of Macroland is now in a recession. Using a correctly labeled graph of the long run aggregate supply, short run aggregate supply, and aggregate demand curves and show each of the following: Current price level, labeled PL1 Current output, labelled Y1 Assume that Braveland, a major trading partner of Macroland, enters into a recession. Explain the effect on Macroland exports to Braveland On your graph in part (a) above, show the effect of the change identified in part (b) (i) above on real output in Macroland. How would this change in real output in Macroland affect unemployment in Macroland? Assume the recession in Braveland causes a decrease in the demand for Macroland dollars in the foreign exchange market. Braveland’s currency is the euro. Explain whether the euro will appreciate, depreciate, or remain…arrow_forward
- The diagram below shows various points on three aggregate demand (AD) curves. A decrease in the price level will produce a movement between which of the following two points on the diagram above? From point X to point Y From point W to point Y From point W to point Z From point Z to point Y From point Y to point Zarrow_forwardA rise in prices of imported resources will cause aggregate:arrow_forwardEconomics Malaysia and the United States trade with each other. The currency in Malaysia is the "ringgit". Currently the exchange rate is approximately 3 ringgit per US dollar. Suppose that the GDP deflator in Malaysia rises relative to the GDP deflator in the United States. Which of the following shifts would we see in the Malaysian forex market? The demand for US dollars would fall. The supply of US dollars would fall. The demand for Malaysian ringgit would rise. The supply of Malaysian ringgit would fall.arrow_forward
- If the price level decreases, what will happen to the level of real GDP supplied? It will usually decrease. It will usually increase. Nothing. It will decrease at first and then increasearrow_forwardRead the following passage to answer the question: Various countries, including South Africa, China and India, have established Special Economic Zones (SEZs) within their domestic economies. Firms that operate within these SEZS receive several incentives including tax relief, rent- free land, capital investment and training. This is done with the expectation to increase exports and to create job opportunities for local communities. Based on the passage, which one of the following statements regarding supply factors and demand factors that affect economic growth, is true? Select one: a. Tax relief, capital investment and training are not supply factors, nor demand factors. b. Creation of job opportunities for local communities will be positively influenced by demand factors. C. The fact that companies operating in SEZs do not have to pay rent, is a demand factor that will affect economic growth. d. Exports by firm's operating in SEZs form part of supply factors.arrow_forwardSuppose there is an international recession hits the US economy, what is the long-run equilibrium will look like? What changes in the U.S GDP? Does it affect to the long run aggregate supply and short run aggregate supply?arrow_forward
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