Components of ad are related to level of income in economy

Reference no: EM133266802

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Aggregate Demand (AD) is exactly the same as Aggregate Expenditure (AE) also called GDP, that is:

AD = C + I + G + (X - M) = AE. chapter is discussing how the components of AD [ C, I, G, (X - M)] are related to the level of income (Disposable Income) in the economy. Please consult PowerPoint lecture notes and answer the following questions:

1. Net Exports (X - M), where X = Exports and M = Imports, are one of the components of AD. The exchange rate is one of the non-income determinants of net exports. What happens to net exports (increase or decrease) in case of a decrease in the exchange rate (a decrease in the value of U.S. dollars), other things constant? Explain. To explain this correctly, it is necessary that you explain first what is happening to X, then M, and then you can determine the net effect on (X - M).

Reference no: EM133266802

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