Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 8, Problem 14QP
To determine
Explain the direct increases in the US price relative to foreign goods.
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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?
According to the East Asia and Pasific Economic update published by the World Bank in April2015, the following factors have affected China’s real GDP in 2015.• Global economic recovery supports a moderate increase in China’s exports.• China benefits from a fall in the world price of oil• Chinese government to cut excess capacity in heavy industry• U.S firms to relocate their labor-intensive manufacturing industries to low-cost acountries.
1. How each of the above factors changes short-run aggregate supply, long run aggregate supply, aggregate demand, or some combination of them.
"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.
Chapter 8 Solutions
Economics (MindTap Course List)
Ch. 8.2 - Prob. 1STCh. 8.2 - Prob. 2STCh. 8.2 - The money supply has risen, but total spending has...Ch. 8.3 - Prob. 1STCh. 8.3 - Prob. 2STCh. 8.3 - Prob. 3STCh. 8.5 - Prob. 1STCh. 8.5 - Prob. 2STCh. 8 - Prob. 1QPCh. 8 - Prob. 2QP
Ch. 8 - Prob. 3QPCh. 8 - Prob. 4QPCh. 8 - Prob. 5QPCh. 8 - Prob. 6QPCh. 8 - Prob. 7QPCh. 8 - Prob. 8QPCh. 8 - Prob. 9QPCh. 8 - Prob. 10QPCh. 8 - Prob. 11QPCh. 8 - Prob. 12QPCh. 8 - Prob. 13QPCh. 8 - Prob. 14QPCh. 8 - Prob. 15QPCh. 8 - Prob. 16QPCh. 8 - Prob. 17QPCh. 8 - Prob. 18QPCh. 8 - Prob. 19QPCh. 8 - Prob. 20QPCh. 8 - Prob. 21QPCh. 8 - Prob. 1WNGCh. 8 - Prob. 2WNGCh. 8 - Prob. 3WNGCh. 8 - Prob. 4WNGCh. 8 - Prob. 5WNGCh. 8 - Prob. 6WNG
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- Which of the following would definitely cause a decrease in the price level for the U.S.? a transition from peace to war and a decrease in productivity an increase in interest rates and a good supply shock involving electricity an increase in wages and an appreciation of the U.S. dollar an expectation by business owners of worse business conditions and an increase in wages an increase in the cost of oil and an increase in tax ratesarrow_forwardA decrease in interest rates caused by a change in the price level would cause a(n): A) Decrease in aggregate demand B) Increase in aggregate demand C) Decrease in the quantity of real domestic output demanded D) Increase in the quantity of real domestic output demandedarrow_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_forward
- In your macroeconomic lectures you are often told that exchange rates and interest rates are important for macroeconomic decision-making. How does an increase in Japan’s government budget deficit affect each of the following? The real interest rate in the short run in Japan. Explain. Private domestic investment in plant and equipment in Japan. Draw a correctly labeled graph of the foreign exchange market for the euro, and show the effect of the change in the real interest rate in Japan from part (a)(i) on each of the following. Supply of euros. Explain. Yen price of the euro To reverse the change in the yen price of the euro identified in part (b) (ii), should the European Central Bank buy or sell euros in the foreign exchang market? Explain.arrow_forwardConsider a small country that is closed to trade, so its net exports are equal to zero. The following equations describe the economy of this country in billions of dollars, where C is consumption, DI is disposable income, I is investment, and G is government purchases: C� = = 30+0.8×DI30+0.8×DI G� = = 5050 I� = = 6060 Initially, this economy had a lump sum tax. Suppose net taxes were $50 billion, so that disposable income was equal to Y – 50, where Y is real GDP. In this case, this economy's aggregate output demanded was ___________ . Suppose the government decides to increase spending by $10 billion without raising taxes. Because the spending multiplier is ____________ , this will increase the economy's aggregate output demanded by ____________ . Now suppose that the government switches to a proportional tax on income of 10%. Because consumers retain the remaining 90% of their income, disposable income is now equal to 0.90Y. In this case, the economy's aggregate output…arrow_forwardWhich of the following is an example of an expenditure-increasing policy? a. a decrease in import quotas b. an increase in the money supply c. an increase in import tariffs d. higher income taxesarrow_forward
- According to the East Asia and Pasific Economic update published by the World Bank in April2015, the following factors have affected China’s real GDP in 2015.• Global economic recovery supports a moderate increase in China’s exports.• China benefits from a fall in the world price of oil• Chinese government to cut excess capacity in heavy industry• U.S firms to relocate their labor-intensive manufacturing industries to low-cost acountries.1. How to explain that each factor separately affect China’s real GDP and the price level, startingfrom a position of long-run equilibrium.arrow_forwardWhat is the effect of a rise in the U.S. price level when the prices in other countries do not change? A. U.S. aggregate demand increases because U.S. exports increase and U.S. imports decrease. B. The quantity of U.S. real GDP demanded decreases because U.S. exports decrease and U.S. imports increase. C. U.S. aggregate demand decreases because U.S. exports decrease and U.S. imports increase. D. The quantity of U.S. real GDP demanded increases because U.S. exports increase and U.S. imports decrease.arrow_forwardQ3-8 Appreciation of the domestic currency will Select one: a. increase domestic aggregate demand. b. decrease domestic aggregate supply. c. decrease domestic aggregate demand, and possibly increase domestic aggregate supply. d. cause a deterioration in the trade balance, but have no effect on aggregate supply or demand.arrow_forward
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