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Aggregate Demand and Unemployment
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In Flowerland, a sudden increase in foreign demand for its agricultural products leads to a significant rise in net exports. How would this change likely affect the overall economy of Flowerland, particularly in relation to aggregate demand and unemployment levels?

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Choose the Best Answer

A

Increased net exports will boost aggregate demand, potentially reducing cyclical unemployment as firms hire more workers to meet demand.

B

Higher net exports will decrease aggregate demand since more goods are being sold abroad than consumed domestically.

C

The rise in net exports will have no effect on aggregate demand, as it only influences trade balances, not employment.

D

Increased foreign demand will lead to greater government spending, which will directly drive down unemployment regardless of aggregate demand.

Understanding the Answer

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Answer

When foreign demand for Flowerland's agricultural products increases, it means that more people from other countries want to buy what Flowerland produces. This boost in sales leads to higher net exports, which is one part of aggregate demand—the total demand for goods and services in the economy. As businesses sell more products, they may need to hire more workers to keep up with the increased production, which can lower unemployment levels. For example, if a flower farm starts exporting more flowers abroad, they might need to hire additional workers to meet the demand. Overall, this situation can lead to a stronger economy with more jobs and higher income for the people of Flowerland.

Detailed Explanation

When more products are sold to other countries, Flowerland earns more money. Other options are incorrect because This answer suggests that selling more abroad means less for local people; This option thinks that trade only affects how much is sold outside.

Key Concepts

Aggregate Demand
Unemployment
Net Exports
Topic

Aggregate Demand and Unemployment

Difficulty

hard level question

Cognitive Level

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