Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 20, Problem 6RQ
To determine
The reason for a change in the foreign real interest rate leads to shift of the AD curve.
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Use the AD/AS framework to explain how the economy adjusts in the short run and the long run to each of the following (assuming that the economy starts at potential GDP with no
spare Capacity and a given price level):
a) World energy prices rise and then settle at a new higher level, and this raises input prices for all domestic producers.
b) There is a one-off fall in export demand which stays at the new lower level. c) The monetary policy makers lower their official interest rate and hold it at the new lower level.
d)The government raises its current spending and keeps it at the new level.
e)Say what might have happened to the other components of aggregate demand when the economy has adjusted to the change In d) in the long run.
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?
Q12
Use the graph below to answer the question
If South Africa were to discover a plentiful supply of cheap oil, this would:
Select one:
A. move the AS curve to the right.
B. move the AD curve to the right.
C. move the AD curve to the left.
D. move the AS curve to the left.
Chapter 20 Solutions
Macroeconomics (Fourth Edition)
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Similar questions
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- Suppose after five years of sluggish growth, the economy of the European Union picks up speed. What would be the likely impact on the U.S. trade balance, GDP, and employment?arrow_forwardRecent economic reports forecast an increase in the interest rate, which likely increases households' desire to save more and decreases business willingness to invest. Use the AD/AD model to show the effects of an increase in the interest rate on the equilibrium Real GDP and Price index?arrow_forwardHow is long-term growth illustrated in an AD/AS model?arrow_forward
- What would be the impact of an appreciating currency on aggregate demand? a) Decrease b) Increasearrow_forwardHow is long-term growth illustrated in an AD/AS model? Draw a graph of the AD/AS model and show the effect of long-term growth from period 1 to period 2. Include the effect of a resulting expansion of the money supply by the Fed.arrow_forward1arrow_forward
- Suppose that the AD-SRAS-LRAS diagram for the economy is starting in a long-run equilibrium. Now if there is a recession in a trading partner country, which causes domestic aggregate demand to fall. What happens to the domestic output and the price level in the short run and long run, respectively? Elaborate on your answers in words.arrow_forwardPlease use the AD-AS model to analyze the effects of monetary policy and fiscal policy on economic outcome in an open economy: a. Please show graphically the shifting of the AD curve after the Fed conducts an expansionary monetary policy in a closed economy (A closed economy means there is no international trade.). How do the price level and the real GDP change? b. Suppose the economy becomes an open economy. Please revise the result that you get in part (a). Please explain how you get the new result using the AD-AS model. c. Please show graphically the shifting of the AD curve after the federal government conducts an expansionary fiscal policy in a closed economy. Please show the crowding-out effect. How do the price level and the real GDP change? d. Suppose the economy becomes an open economy. Please revise the result that you get in part (c). Please explain how you get the new result based on the AD-AS model.arrow_forwardWhat impact would a decrease in the size of the labour force have on GDP and the price level according to the AD/AS model?arrow_forward
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