EBK ECONOMICS
13th Edition
ISBN: 8220106798607
Author: Arnold
Publisher: CENGAGE L
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Chapter 9, Problem 13QP
To determine
Explain the importance of the real balance, interest rate, and international trade effects.
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Q1: Due to COVID-19 situations, the oil prices fall in the international market. Let’s assume that output starts at its natural level.⦁ What happens to Pakistan’s economy (output and price) in the short run? Explain your answer using AS-AD graphs.
⦁ What happens to Pakistan’s economy (output and price) in the long run? Explain your answers using graphs.
Assume the economy is in equilibrium. If the interest rate falls, what sequence of events will return
the economy to equilibrium?
Bond prices rise, causing foreign investment to flow in, causing the exchange rate to fall (appreciate).
Savers save more to replace lost interest earnings, consumption falls, imports rise, and the trade balance
falls, causing output to fall.
Total spending rises as investors move funds into foreign assets, causing the exchange rate to rise
(depreciate), and the trade balance increases, causing output to rise.
Total spending falls, unemployment rises, government transfers increase, inflation rises, and the exchange
rate falls (appreciates).
(a) In order to get out of recession, the government chooses to reduce taxes (T) by 250. Find the new equilibrium level of income and interest rates.
(b) If instead (i.e. government taxes are back to the original level of 1000), it chooses to increase the money supply (M) by 250. Find the new equilibrium level of income and interest rates.
Chapter 9 Solutions
EBK ECONOMICS
Ch. 9.1 - Prob. 1STCh. 9.1 - Prob. 2STCh. 9.1 - Prob. 3STCh. 9.2 - Prob. 1STCh. 9.2 - Prob. 2STCh. 9.2 - Prob. 3STCh. 9.3 - Prob. 1STCh. 9.3 - Prob. 2STCh. 9.3 - Prob. 3STCh. 9 - Prob. 1QP
Ch. 9 - Prob. 2QPCh. 9 - Prob. 3QPCh. 9 - Prob. 4QPCh. 9 - Prob. 5QPCh. 9 - Prob. 6QPCh. 9 - Prob. 7QPCh. 9 - Prob. 8QPCh. 9 - Prob. 9QPCh. 9 - Prob. 10QPCh. 9 - Prob. 11QPCh. 9 - Prob. 12QPCh. 9 - Prob. 13QPCh. 9 - Prob. 14QPCh. 9 - Prob. 15QPCh. 9 - Prob. 16QPCh. 9 - Prob. 17QPCh. 9 - Prob. 18QPCh. 9 - Prob. 1WNGCh. 9 - Prob. 2WNGCh. 9 - Prob. 3WNGCh. 9 - Prob. 4WNGCh. 9 - Prob. 5WNGCh. 9 - Prob. 6WNGCh. 9 - Prob. 7WNG
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