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Unformatted text preview: C) will definitely induce a downward shift in the AE curve as Investments will be discouraged. D) (by assuming that our home country is ‘USA’ in this question), when USD appreciates, our export will be discouraged. Thus Net Export will be worsen and it will induce a downward shift in the AE curve. Q7 The question implies that the equilibrium GDP is fall short of the potential GDP, i.e. the economy is NOT operating at full capacity/ full employment. (reference: slide 35 of lecture powerpoint/ fig. 11.11). Q8 A higher inflation in US then that in other countries implies that goods in US are relatively more expensive. Export of US will be hurt; US citizens would like to consume relatively more imports than local goods. As a result, net exports will be worsen. Q9 A) It may be possible for the multiplier to depend on ‘Marginal Propensity to Imports’, as import also depends on disposable income....
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This note was uploaded on 04/22/2010 for the course ECONOMICS ECON1002 taught by Professor None during the Spring '10 term at Hong Kong Institute of Vocational Education.
- Spring '10