Suppose That,because of a Large Increase in Export Orders in a Hypothetical

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The Answer is Real GDP will follow the path ABFE as shown Figure I below.This will cause real GDP to fall below potential GDP,sending the economy into a recession.

Real GDP will follow the path ABFE as shown Figure I below.This will cause real GDP to fall below potential GDP,sending the economy into a recession. The increase in export orders will result in the economy being at point a along AD<sub>1</sub> in Figure II below.In the medium run,as the economy approaches point b along AD<sub>1</sub>,discretionary policy is enacted,causing the AD curve to shift back to AD<sub>2</sub>.This results in real GDP falling below potential GDP,sending the economy into a recession.

The increase in export orders will result in the economy being at point a along AD₁ in Figure II below.In the medium run,as the economy approaches point b along AD₁,discretionary policy is enacted,causing the AD curve to shift back to AD₂.This results in real GDP falling below potential GDP,sending the economy into a recession.

Suppose That,because of a Large Increase in Export Orders in a Hypothetical

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Suppose That,because of a Large Increase in Export Orders in a Hypothetical

Essay

Correct Answer:VerifiedShow Answer

Correct Answer:
Verified