Explain the relationship between the aggregate expenditures model in graph (A) below and the aggregate demand–aggregate supply model in graph (B) below where aggregate demand is shifting while the price level remains constant.
In (A) we assume that some determinant of consumption, investment, or net exports other than the price level shifts the aggregate expenditures schedule from (C + Ig + Xn)1 to (C + Ig + Xn)2, thereby increasing real domestic output from GDP1 to GDP2. In (B) we find that the aggregate demand counterpart of this is a rightward shift of the aggregate demand curve from AD1 to AD2 which is just sufficient to show the same increase in real output as in the expenditures-output model.
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In a two country and two product Ricardian model, a small country is likely to benefit more than the large country because
A) the large country will wield greater political power, and hence will not yield to market signals. B) the small country is less likely to trade at price equal or close to its autarkic (domestic) relative prices. C) the small country is more likely to fully specialize. D) the small country is less likely to fully specialize. E) the small country can raise wages.
Suppose you lend $1,000 at an interest rate of 10 percent over the next year. If the expected real interest rate at the beginning of the loan contract is 4 percent, then what rate of inflation over the upcoming year would be most beneficial to you as the
lender? An inflation rate A) equal to 0 percent. B) greater than 6 percent. C) equal to 6 percent. D) equal to 4 percent.