Assume the economy of Andersonland is in a long-run equilibrium with full employment. In the short run, nominal wages are fixed.

Draw a correctly labeled graph of short-run aggregate supply, long-run aggregate supply, and aggregate demand. Show each of the following.

Equilibrium output, labeled Y₁

Equilibrium price level, labeled PL₁

Assume that there is an increase in exports from Andersonland. On your graph in part (a), show the effect of higher exports on the equilibrium in the short run, labeling the new equilibrium output and price level Y₂ and PL₂, respectively.

Based on your answer in part (b), what is the impact of higher exports on real wages in the short run? Explain.

As a result of the increase in exports, export-oriented industries in Andersonland increase expenditures on new container ships and equipment.

What component of aggregate demand will change?

What is the impact on the long-run aggregate supply? Explain.