PS6_Ans - Assessment 6 1C 2D 7D 6A 3 8 C B 4 9 D A 5 10 A A...

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Assessment 6 1 C 2 D 3 C 4 D 5 A 6 A 7 D 8 B 9 A 10 A Suggested explanations to selected questions: Q1 For reasons that explain the downward sloping AD, you may refer to slide #6-8. C) particularly refers to the ‘international-trade effect’ as mentioned in slide 8. Q2 US GDP growth rate slower than other countries’ GDP growth rates = US citizens’ income increases slower than that of foreigners. So, exports (in US) will rise slower than imports. This is an unfavourable change to Net Exports. Thus, (as in Ch. 11), AE curve will be shifted down, equi GDP drops. However, the above change has nothing to do with price levels. So, when we bring over the results to Ch. 12, the whole AD curve will be shifted to the left since AD decreases at each and every price level. Q3 Ask yourself, what determines the level of LRAS (i.e. the level of potential GDP)? (Hint: Read Ch.10) Q5 Increases in LRAS should be regarded as a rightward shift instead of an upward shift since an increase in the potential GDP was determined by the influx of new
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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.

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