Until recently the mountanous country of tibet had been cut off from the rest of the world. an active international sector has been created. Tibet has pursued an policy of ensuring that explors equal imports. As an result of thi policy, Tibet's AE function will:
a. Not Shift
b. Become Flatter
c. Become Steeper
d. Shift Upward
Explain the answer you circle: Why?
Pic unrelated.
I presume that AE means aggregrate expenditure.
I gotta go with a). If net exports is always zero, the aggregate expenditure should not change a bit.
The answer circled would be either option b. Become Flatter or option c. Become Steeper.
To determine the correct answer, we need to understand the concept of the AE (Aggregate Expenditure) function. The AE function shows the relationship between the total planned spending in an economy and the level of real GDP. It consists of four components: consumption (C), investment (I), government spending (G), and net exports (NX).
In the given scenario, Tibet has pursued a policy of ensuring equal imports. This means that Tibet wants the value of their imports to be equal to the value of their exports. This policy would impact the net exports component of the AE function.
If Tibet successfully implements this policy, we can expect their imports and exports to be roughly equal, resulting in a balanced trade position. In this case, net exports (NX) would be close to zero.
If net exports are close to zero, it means that the net export component of AE will be relatively small or even zero. As a result, the AE function would become flatter since the net export component no longer has a significant impact on the overall level of expenditure.
So, the correct answer would be option b. Become Flatter, as the pursuit of equal imports would lead to a reduced impact of net exports on the AE function.