Question

You are an economic advisor to the president. You observe an increase in exports. Assume the economy was operating at the full employment level of real GDP prior to the increase in exports

Describe the state of the economy and advise the president on the appropriate policy action by completing the following sentences
a. The increase in exports will lead to Cick to select) in net exports and in turn ((Click to select) in aggregate demand As a result, real GDP will (Click to select)
b. The problem that this event will cause is (Click to select)
c. Appropriate (Click to policy actions would include (Ckk ее taxes and/or ci k se ; government purchases.
d. These actions will smooth out the business cycle by (cick to selct) actual real GDP back toward full-employment GDP

Answer 1

Answer and Explanation:

a. If there is an increase in export so it would lead to increase in net exports also the aggregate demand would also increase due to which the real GDP would rise

b. This would cause the inflation

c. So the appropriate fiscal policy would increase the taxes and reduction in the government purchase. This would decrease the aggregate demand

d. These actions would reducing the actual real GDP