The strong recovery in US domestic demand has spilled over to the rest of the global economy. The largest economy in the world is sucking in goods from the rest of the world at a record rate, either to restock inventories or for final consumption. The US trade deficit in goods was over $93 billion in June; its overall trade deficit was lower because the US has a surplus in services trade. India has been one of the beneficiaries of rising demand from countries such as the US. Indian goods exports have had a splendid run in recent months. Use the AD-AS model to examine the short- un effect of this event on the Indian economy. What is the short-run effect on GDP, price level and unemployment? Assume hat initially the Indian economy is in a long- un equilibrium. Explain how the economy may correct itself in the long run even without any intervention by the policymakers.

The strong recovery in US domestic demand has spilled over to the rest of the global economy. The largest economy in the world is sucking in goods from the rest of the world at a record rate, either to restock inventories or for final consumption. The US trade deficit in goods was over $93 billion in June; its overall trade deficit was lower because the US has a surplus in services trade. India has been one of the beneficiaries of rising demand from countries such as the US. Indian goods exports have had a splendid run in recent months. Use the AD-AS model to examine the short- un effect of this event on the Indian economy. What is the short-run effect on GDP, price level and unemployment? Assume hat initially the Indian economy is in a long- un equilibrium. Explain how the economy may correct itself in the long run even without any intervention by the policymakers.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter4: The Aggregate Economy

Section: Chapter Questions

Problem 5E

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