Question

Small Case 2. The country A’s exports to other countries decreased Write the short essay (70-100...

Small Case 2.

The country A’s exports to other countries decreased Write the short essay (70-100 words) by answering the below questions:

a. What is changing, AD or SRAS?

b. Will it increase or decrease? Explain how this change will take place.

c. Draw the appropriate change below.

d. What happened to Real GDP?

e. What phase of the business cycle would the economy be in?

f. What is likely happening to unemployment?

g. What happened to price level?

Homework Answers

Answer #1

a. AD is changing because

b. AD= C+I+G+X-M so a decrease in X will decrease the AD and it will shift to the left

c.

Initially Price was at level OP and output at OQ. AD decreased and moved to AD1.

d. Real GDP fell from OQ to OB

e. The economy is under recessionary phase of business cycle wherein prices, output, employment are declining

f. Unemployment is increasing. Initially employment was corresponding to OQ, now it is at OB and OB<OQ

g. Price levels have also fallen from OP to OA

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