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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Will a direct increase in the price of U.S. goods relative to foreign goods lead to a change in the quantity demanded of Real GDP or to a change in Aggregate Demand? Will a change in the exchange rate that subsequently increases the price of U.S. goods relative to foreign goods lead to a change in the quantity demanded of Real GDP or to a change in Aggregate Demand?
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…
What will an increase in U.S. prices likely
Chapter 10 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- "In an economy with a high dependency on imported oil, what is the likely macroeconomic impact of a sustained and significant increase in global oil prices? 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.arrow_forwardWhy are aircraft one of the United States' greatest exports? The demand for aircraft is high. The US has a great deal of technological knowledge. The American dollar is cheap compared to other currencies.arrow_forwardConsider an oil-exporting economy in its long-run equilibrium. Which of the following explains the ultimate short-run effect of a decrease in international oil price on the GDP of this economy? The GDP will ultimately be at potential output. The GDP will ultimately decrease. The GDP will ultimately increase. The effect on GDP will be ambiguous.arrow_forward
- • A series of natural disasters occurs that causes the following changes in the U.S. economy: The real gross domestic product drops by 4 percent. The inflation rate rises from 5 percent to 10 percent. Unemployment increases from 6 percent to 10 percent. Suppose that the federal government, holding taxes constant, increases its spending and the Federal Reserve increases its purchases of bonds. Explain how exports and imports will be affected by the changes in output and prices resulting from the policies described.arrow_forwardHow do people typically respond to higher real interest rates? by saving less by paying more taxes by saving more by consuming morearrow_forwardWhen incomes rise, imports tend to a) behave in an unpredictable manner b) fall c) rise d) stay the samearrow_forward
- Which of the following could be a cause for imports not decreasing despite policy measures taken? Select One: a) Imports constitute consumer goods b) Demand is elastic c) Goods are luxuries d) Imports constitutes capital goods e) Export demand is inelasticarrow_forwardAn expected decline in demand for consumer goods in the U.S. means there will be less imports into the U.S. Less imports in the U.S. translates to a reduction in exports from China, which is significant as the U.S. has the largest GDP of all nations. As the U.S. is reducing imports, it will be purchasing less goods from China, which means the U.S. will be giving up less dollars to purchase Chinese goods with the yuan. Will a decline in demand for consumer goods in the U.S. impact China's economy given the above information? If so, how would that affect the dollar-yuan exchange rate?arrow_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_forward
- The graph below is associated with a hypothetical country. Consider a decrease in aggregate demand (AD). Specifically, aggregate demand shifts to the left from AD to AD₂, causing the quantity of output demanded to fall at each price level. For instance, at a price level of 140, output is now $200 billion, where initially it was $300 billion. PRICE LEVEL 170 160 150 140 130 120 110 100 8 90 0 100 AD₁ AD₂ 200 300 400 500 600 OUTPUT (Billions of dollars): 700 800 ?arrow_forwardThe graph below is associated with a hypothetical country. Consider a decrease in aggregate demand (AD). Specifically, aggregate demand shifts to the left from AD₁ to AD2, causing the quantity of output demanded to fall at each price level. For instance, at a price level of 140, output is now $200 billion, where initially it was $300 billion. PRICE LEVEL 170 160 150 140 130 120 110 100 90 0 100 +-+ I I 200 300 400 500 OUTPUT (Billions of dollars) AD1 AD2 600 700 800 ?arrow_forwardOne of the reasons given for the downward sloping aggregate demand curve is the foreign price effect. Clearly explain, step by step, how an increase in the price level will lead to a decrease in the aggregate demand, indicating a downward sloping aggregate demand curve.arrow_forward
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