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March 25, 2017

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What is the effect of the following shocks on the short-run level of national output?

a A fall in interest rates?
b An appreciation of the Home currency?
c A tax cut?
d A tax cut in Foreign?
e A drop in consumer confidence (consumer want to spend less)?
f News that imported products make you sick?

  • Econ - ,

    National output, aka GNP, is the sum of C+I+G+(X-M) (X-M is net exports).

    So, for each scenario, decide how one (or more) of the above factors would change. A fall in interest rates should spur investments (I), an appreciation of the home currency should make imports cheaper and exports more expensive, a tax cut should increase disposable income which increases consumption, (A cut in Foreign? whats that). Anyway, take it from here.

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