Answer to Question #229372 in Macroeconomics for Katrichie

Question

2.1 List and explain 2 reasons why the AD curve has a negative slope (5 marks)

2.2 Briefly discuss the determinants of

2.2.1 Imports (3 marks)

2.2.3. Exports (3 marks)

2.3 With the help of an IS-LM diagram show the effect of restrictive monetary policy on output under flexible exchange rates and with perfect capital mobility. (8 marks) 2.4 Explain fully how a real depreciation affects output. (8 mark) 

Answer 1

2.1Aggregate demand curve slopes downward based on increase in price level and decrease in output. Decreases and increases in the autonomous spending elements may shift Aggregate Demand curve. similarly, foreign spendings reduces as foreign demand for the domestic goods decreases.

2.2.1 Imports are determined by dynamics as well as level of level domestic income.

2.2.3 Exports are determined by the externalities including rea exchange rate and FDI.

2.3