What is the effect of net exports, either positive or negative, on equilibrium GDP?
What will be an ideal response?
Positive net exports increase aggregate expenditures beyond what they would be in a private closed economy and thus have an expansionary effect. The multiplier effect also is at work. Positive net exports will lead to a positive change that is greater than the amount of the initial change. Negative net exports decrease aggregate expenditures beyond what they would be in a private closed economy and thus have a contraction effect. The multiplier effect also is at work here. Negative net exports lead to a negative change in equilibrium GDP that is greater than the initial change.
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Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; potential B. recessionary; higher; potential C. recessionary; lower; lower D. expansionary; higher; higher
Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. If all ten people can negotiate with each other at no cost, then which of the following outcomes is consistent with the Coase theorem?
A. The nine non-smokers will each pay the cigar smoker fifty cents and the cigar smoker will not smoke. B. The cigar smoker will not be able to smoke because the majority of people in the room dislike the smell of cigar smoke. C. The cigar smoker will pay each of the other nine people fifty-five cents, and they will agree to allow smoking. D. The cigar smoker will smoke because the external cost of smoking does not need to be taken into consideration.
A market failure arises when an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event
Indicate whether the statement is true or false
Explain the potential costs of high-powered incentives by considering the case of providing incentives to police officers. Would it be a good idea to pay higher wages to police officers if they make more arrests?
What will be an ideal response?