If Canadians develop a greater taste for foreign vacations, and assuming that ag
ID: 1116960 • Letter: I
Question
If Canadians develop a greater taste for foreign vacations, and assuming that aggregate output is demand-determined, what will happen to the AF function and equilibrium national income? A) there will be no change in the AE function or in equilibrium national income. B) the AE function will rotate downward (become flatter) and national income will fall. C) the AE function will shift up parallel to itself and equilibrium national income will rise. D) the AE function will shift down parallel to itself and equilibrium national income will fall. E) the AE function will rotate upward (become steeper) and equilibrium national income will rise. in the long run, an increase inthe demand orinvestment pushes the real interest rate, encourages saving by households, and leads to a future growth rate of potential output A) up: more; higher up; less; lower C) up; more; lower D) down; less; lower E) down; less, higher mpe (it) mExplanation / Answer
2, D) the AE function will shift down parallel to itself and equilibrium nationa income will fall.
Increase in demand of foreign vacation means increase in imports which shifts AE curve downwards and decreases national income.
3. E) down; less; higher
Increase in investment decreases savings of households and increases future growth of country. It also leads to decrease in real interest rate.
6. D) a consumer who borrowed money at the beginning of the year
Borrower has to pay the same amount which he had borrowed but due to inflation, value of that amount decreases so it will be better off for borrower and worse off for lender.