2. The US and Mexico are major trading partners in goods, services and resources. Starting from...
2. The US and Mexico are major trading partners in goods, services and resources. Starting from long-run equilibrium, graphically illustrate and explain what happens to the price level, RGDP and the unemployment rate in the US if there is a decrease in the value of the dollar relative to the peso.
Homework Answers
Decrease in the value of us dollar makes us goods cheaper for Mexico. This increases us net exports which leads to increase aggregate demand represented by rightward shift in AD.
In long run nominal wages will rise as output is being produced at a level greater than full employment. Higher wages means higher cost of production that results in decrease in aggregate supply, represented by leftward shift AS. Thus in the long run output remains the same, unemployment rate remains the same as in long run and price level rises further.
Ona Price CRAS 1P output
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2. The US and Mexico are major trading partners in goods,
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short run and long run effect of that country’s recession on the US
economy.
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economy.
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