Question

Complete the questions below that are based on your chapter readings. Submit your answers in a Microsoft Word document (no PDFs) by 11:00 p.m. on Sunday of Unit 4 or as directed by your professor. 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 id

Answer 1

Multiplier : 7-mpc mauginal puepeneity - to consume multipliese = mps - marginal propereit, to save 1.62 = mps = 0.62 1 1.62 Impact of additional export: - Expout multipler = - 4x I-mpc Change in Export mps - 1000 0.62 (1619.90) G causis rightwand a) Increase in shift of AD. - Real GDP and puice level both inculades. 1. Slanned CamScanner Real GDP

fall in wage decreases AS and shift AS leftwardo Price 1 Price and level ruses real GDP falls. Real GDP el Improvement in technology increases production T and thus shifts aggregate supply rightwards, Price АС As Price level falls & Real GDP uises. - Real GDP Reduction in Net exports decreases NX component of AD & shifts AD leftwards, Poice AS - Price level falls & Real gap also deceasel. with CamScanner t Real GDP