Suppose the Italian economy experiences an international boycott of its exports. What will happen to Italy's...
Suppose the Italian economy experiences an international boycott of its exports. What will happen to Italy's equilibrium?
Real GDP falls, price-level rises
Real GDP rises, price-level falls
Real GDP and price-level both decrease
Real GDP rises, price-level falls
Homework Answers
The national income of the country is equal to the sum of consumption, investment, government expenditure and net exports. That is.
So the boycott will reduce the amount of the country which will negatively affect the net exports of the economy. As a result the income of the people will fall which reduces the aggregate demand, the AD curve shifts to the left. The result would be a fall in both general price level and real GDP.
Ans: Real GDP and price level both decrease.
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