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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

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? Explain your answers.

To determine

Explain the direct increases in the US price relative to foreign goods.

Explanation

In general, a direct increase in the price of the US goods relative to foreign goods leads to the changes in the quantity demanded of Real GDP because of the trade effect. The changes in the quantity demanded of Real GDP cause the Aggregate demand (AD) curve to slide up along with Aggregate demand (AD) curve...

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