Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The strong recovery in US domestic demand has spilled over to the rest of the global economy. The largest economy in the world is sucking

The strong recovery in US domestic demand has spilled over to the rest of the global economy. The largest economy in the world is sucking in goods from the rest of the world at a record rate, either to restock inventories or for final consumption. The US trade deficit in goods was over $93 billion in June; its overall trade deficit was lower because the US has a surplus in services trade. India has been one of the beneficiaries of rising demand from countries such as the US. Indian goods exports have had a splendid run in recent months. Use the AD-AS model to examine the short-run effect of this event on the Indian economy. What is the short-run effect on GDP, price level and unemployment? Assume that initially the Indian economy is in a long-run equilibrium. (8 marks) Explain how the economy may correct itself in the long run even without any intervention by the policymakers. (7 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Great Convergence Information Technology And The New Globalization

Authors: Richard Baldwin

1st Edition

067466048X, 9780674660489

More Books

Students also viewed these Economics questions

Question

Brief the importance of span of control and its concepts.

Answered: 1 week ago

Question

What is meant by decentralisation?

Answered: 1 week ago

Question

Write down the Limitation of Beer - Lamberts law?

Answered: 1 week ago

Question

Discuss the Hawthorne experiments in detail

Answered: 1 week ago