Suppose That,at Any Given Level of Income,people Decide to Import

Essay

Suppose that,at any given level of income,people decide to import more.
(A)Using the aggregate demand curve and the inflation adjustment line,describe how this affects real GDP,consumption,investment,net exports,interest rates,and inflation in the short run,the medium run,and the long run.Provide an economic explanation of your results.Assume the economy is initially at the point of long-run equilibrium.
(B)Now,suppose the central bank wants to revert to the inflation rate that prevailed prior to the increase in import spending.How can it achieve its objective? Describe the short-run,medium-run,and long-run effects of its policy on real GDP and inflation.