Assuming the Marshall-Lerner condition holds and using the ZZ/Y and NX graphs, illustrate graphically and explain what effect a real appreciation will have on output, exports, imports, and net exports. Clearly label all curves and clearly label the initial and final equilibria
What will be an ideal response?
A real appreciation will cause NX to fall. The fall in NX will cause a decrease in demand. As demand falls, Y will decrease causing a fall in C and S. As Y decreases, imports will decrease as well. As shown in the text, the decrease in imports will be less than the fall in exports. So, NX will be lower.
Economics
You might also like to view...
In their relationship with stockholders, a firm's managers act
A) as agents. B) as principals. C) in loco parentis. D) as proprietors.
Economics
The opportunity cost of producing a bicycle refers to
a. the out-of-pocket payments made to produce the bicycle. b. the value of the goods that were given up to produce the bicycle. c. the bicycle's retail price. d. the marginal cost of the last bicycle produced.
Economics