Question 3:

3.) Suppose demand for US exports suddenly grows in countries across the world. a. Use the aggregate demand and ination adjustment line to describe what would happen to real GDP, ination, the real interest rate, consumption, net exports and investment in the short, medium and long-run in response to this increase in the demand for US exports. Assume the economy starts from a position where output is equal to potential GDP. On your ADIA diagram, show the initial (0), short-run (SR), medium-run (MR) and long-run (LR) situations. b. In addition, show the short, medium, and long run effects of this growth in net exports in (l) a diagram showing the monetary policy rule and (2) a diagram showing the expenditure and 45-degree lines