Question

What are the determinants of both net capital outflow and determinants of net exports?

What are the components of aggregate demand and aggregate supply? (&What shifts each and what causes a movement along?)

What are the three effects that mean AD is downward-sloping?

Answer 1

The determinants of net capital outflow are the real interest rate offered on foreign -assets and real interest paid on domestic assets. Any disequilibrium will lead to either in capital outflow or capital inflow. Net capital outflow occurred when the interest on foreign paid by foreign asset is higher than domestic assets-real interest rate.

The determinants of net export are trade policies, exchange rate relative Price of the good and income. The favourable change in any of the factors leads to increase in net export whereas unfavourable change lead to excess of import over export.

The four components of aggregate demand are: consumption,investment,governmnent spending and net export.

Whereas aggregate supply has only two components which is consumption and saving that ultimately affects the demand and supply of money.

The AD and AS curve determines price and output in the economy. Whenever the price of goods Changes there is change in quantity demand which leads to movement along the curve.

Whereas, the shift of AD & AS takes place due to change in the components of AD and AS. Whenever the government spending, consumption, net export, investment, or money demand or supply Changes then this leads to shift in either AD or AS. The shift of that curve occur whose components gets change.

The three effects that means AD is downward sloping are wealth effect, keynes interest effect and mundel fleming's exchange rate effect.