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Chapter 11: Q.16 (page 252)

Consider Figure 11-9. Suppose that businesses in this nation initially had been exporting significant amounts of domestically produced goods and services abroad. Assume that other nations of the world have experienced a sudden decline in economic conditions. What happens to the nation's aggregate demand curve? In the short run, will the nation experience an inflationary gap or a recessionary gap? Explain.

Short Answer

Expert verified

In the short run, will the nation experience a recessionary gap

Step by step solution

01

introduction

Financial stoppage in different countries of the world will move the country's AD bend to one side. The economy will encounter a recessionary gap in the short run.

02

explanation

The financial slump in the remainder of the world will prompt a diminishing in sends out and consequently, in AD. Thus, the AD bends movements to one side, from AD1to AD2. This gap of $0.2trillion causes the value level to diminish from 110 to 105. In this way, there is a recessionary gap in the short run.

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