Q. 13 10-13. Explain whether each of t... [FREE SOLUTION]

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Chapter 10: Q. 13 (page 229)

10-13. Explain whether each of the following events would cause a movement along or a shift in the $A D$ curve, other things being equal. In each case, explain the direction of the movement along the curve or shift in its position.
a. Deflation has occurred during the past year.
b. Real GDP levels of all the nation's major trading partners have declined.
c. There has been a decline in the foreign exchange value of the nation's currency,
d. The price level has increased this year.

Short Answer

Expert verified

a. There's a downward movement along the demand curve.

b. There's a leftward shift along the demand curve.

c. This results into a rightward shift within the domestic aggregate demand curve.

d. There's an upward movement along the AD curve.

Step by step solution

Downward (a)

a. As you recognize that the worth level falls during deflation. So, when deflation occurs during the year, there's a downward movement along the demand curve.

Leftward (b)

b. Whenthe important GDP levels of all the nation's major trading partners' declines, it reduces the income of all the nation's residents, and thisresults in cut on their spending on domestic export. Thus,there's a leftward shift along the demand curve.

Rightward (c)

c. When theexchange value of the nation's currency declines, domestically produced goods and services becomesless costly to foreigners. So, they increase their spending on domestic exports. This results into a rightward shiftwithin the domestic aggregate demand curve.