The economy of Ashville is currently in a macroeconomic equilibrium, as depicted by point E, in the accompanying figure. The main component of Ashville's exports consist of the raw materials that it derives from its natural resources. Suppose that the world demand for raw materials decreases sharply, resulting in a decrease in the price of raw materials throughout the world. The decrease in the world demand for raw materials, which is the major source of Ashville's exports, will the level of aggregate demand in Ashville, causing a the AD curve. shift in The decrease in the world demand for raw materials, which implies a decrease in the level of factor prices, leads to in the unit cost of production in Ashville, causing a shift in the AS curve. Use the three-point curve drawing tool twice to draw and label new AS and AD curves that shows the effect of this shock on Ashville's economy. Carefully follow the instructions above, and only draw the required object. The overall effect of this shock on Ashville's equilibrium is ambiguous. Price Level (P) 2,000- 1,800- 1,600- 1,400- 1,200- 1,000- 800- 600- 400- 200- 0+ 0 1 Economy of Ashville 2,000 Eo 4,000 6,000 Real GDP (Y) ASO ADO 8,000 10,000

The economy of Ashville is currently in a macroeconomic equilibrium, as depicted by point E, in the accompanying figure. The main component of Ashville's exports consist of the raw materials that it derives from its natural resources. Suppose that the world demand for raw materials decreases sharply, resulting in a decrease in the price of raw materials throughout the world. The decrease in the world demand for raw materials, which is the major source of Ashville's exports, will the level of aggregate demand in Ashville, causing a the AD curve. shift in The decrease in the world demand for raw materials, which implies a decrease in the level of factor prices, leads to in the unit cost of production in Ashville, causing a shift in the AS curve. Use the three-point curve drawing tool twice to draw and label new AS and AD curves that shows the effect of this shock on Ashville's economy. Carefully follow the instructions above, and only draw the required object. The overall effect of this shock on Ashville's equilibrium is ambiguous. Price Level (P) 2,000- 1,800- 1,600- 1,400- 1,200- 1,000- 800- 600- 400- 200- 0+ 0 1 Economy of Ashville 2,000 Eo 4,000 6,000 Real GDP (Y) ASO ADO 8,000 10,000

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter21: International Trade And Comparative Advantage

Section: Chapter Questions

Problem 2TY

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