Answer to Question #112426 in Macroeconomics for NTSHEBENG

Question

Based on the international trade effect, how would an increase in the price level in South Africa affect the exchange rate and aggregate demand?

Aggregate spending will increase if....?

The cost of production in the South African economy accelerated due to rising prices of electricity and petrol in the country which led to increase in the prices of domestic goods and services relative to foreign goods and services. This will likely lead to a (n)......

If the government decides to increase personal income tax to raise its tax revenue, what will be the impact on the economy?

Answer 1

Due to the parity of consumer baskets, we can argue that the national currency will fall in the exchange rate. This is because, theoretically, the same consumer basket cannot have different values in several states. On this basis, an increase in the value of a product is equivalent to giving more of the national currency for a foreign one in exchange. Aggregate demand will go down. People will begin to purchase less goods because they are limited in their purchasing power by money