The strong recovery in US domestic demand has spilled over to the rest of the global economy. The largest economy in the
Posted: Mon May 02, 2022 8:02 am
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.
1. 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.
2. Explain how the economy may correct itself in the long run
even without any intervention by the policymakers.
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.
1. 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.
2. Explain how the economy may correct itself in the long run
even without any intervention by the policymakers.