Question

in goa,india,the multiplier effect of iron ore exports is calculated

1. In Goa, India, the multiplier effect of iron ore exports is calculated to be 1.62 (Ta, 2003). Calculate the impact of an additional 1.000 rupees of iron ore exports on the economy of Goa. 2. Use the model of aggregate demand and short-run aggregate supply to explain how each of the following would affect real GDP and the price level in the short run. a. an increase in government purchases b. a reduction in nominal wages C. a major improvement in technology d. a reduction in net exports 3. The United Kingdom (UK) held a national referendum (vote) on whether the UK should remain in the European Union (EU). should exit the EU. Exiting the EU is likely to have several consequences: (1) increased barriers to trade between the UK and the remaining EU countries; (2) Reduced refugee flows. Use the AS/AD model to describe the short run and long run effect of the UK exit from the EU,

Answer 1

1.

Impact of additional exports = multiplier * increase in imports

Impact of additional exports = 1.62*1000=1620.

2.

a. Increasing government purchases will increase aggregate demand, shift the AD curve to the right and increase both prices and real GDP.

AS1 E2 P2 E1 P1 Excess Demand AD2 AD1 Y Y1 Y2.

b. Reduction of nominal wages reduces production costs and therefore increases total supply. SRAS curve shifts to the right, price level decreases and real GDP increases.

AS1 AS2 E1 P1 E3 Excess Supply E2 P2 AD1 Y1. Y2 Y3

c. Technological improvements are reducing production costs efficiently, thereby increasing the total output. SRAS curve moves right, price levels decrease and real GDP increases.

AS1 AS2 E1 P1 E3 Excess Supply E2 P2 AD1 Y1. Y2 Y3

d. Net export reduction reduces aggregate demand, moving the AD curve left and reducing both the price and actual GDP.

P SRAS1 Е1 Excess Supply P1 P2. E2 AD1 AD2 Y Y3 Y2 Y1