Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Shift to the right; increased income in the neighboring country raises demand for your exports, increasing overall aggregate demand.
B
Shift to the left; higher income leads to increased savings rather than spending, thus decreasing aggregate demand.
C
No shift; changes in income levels of trading partners do not affect aggregate demand in your country.
D
Shift to the right; increased income only affects supply-side factors, thus increasing aggregate demand.
Understanding the Answer
Let's break down why this is correct
Answer
When a neighboring country experiences a significant increase in income levels, it means that people there have more money to spend. As a result, they will likely buy more goods and services from your country, which increases the demand for your exports. This increase in demand will lead to a rightward shift in your country's aggregate demand because more people are spending money on your products. For example, if your country exports cars and the neighboring country buys more cars due to their higher income, this will boost your economy. Overall, the higher demand for exports from your country means that businesses will produce more, leading to economic growth.
Detailed Explanation
When the neighboring country earns more money, they want to buy more goods from your country. Other options are incorrect because This option suggests that people save more money instead of spending it; This answer thinks that changes in other countries don't affect your economy.
Key Concepts
Aggregate Demand
Economic Interdependence
Income Effect
Topic
Graphing Economic Impacts
Difficulty
medium level question
Cognitive Level
understand
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