AB 204 All Assignments AB 204 All Assignments | Page 11

a) Why do net exports and net capital outflows tend to be equal? How
does an increase in the price level change interest rates?
b) How does this change in interest rates lead to changes in investment
and net exports?
3) Assume there is a decrease in the demand for goods and services,
which leads to a decrease in the real GDP and eventually the economy
into recession.
a) When the economy enters recession due to a decline in demand,
what will happen to the price level?
b) Assume there is no government intervention. What will ensure that
the economy still eventually gets back to the natural rate of output
(real GDP)?
4) A number macroeconomic variables decline during recessions. One
of these variables is the GDP.
a) What other variables, besides real GDP, tend to decline during
recessions? Given the definition of real GDP and its components,
explain the declines in these economic variables which are to be
expected.
b) Empirical studies indicate that the long-run trend in real GDP of
the USA has an upward trend. How is this possible given business cycles
and macroeconomic fluctuations? What factors explain the upward
trend in spite of the cycles?
5) Assume there are short-run and long-run Macroeconomic
Equilibriums in the economy.