Income And The Level Of Real Output, The Price Level And Employment
Economics notes
Income And The Level Of Real Output, The Price Level And Employment
➡️ Exchange rate changes can affect the domestic economy➡️s equilibrium national output by shifting the aggregate demand (AD) curve. A depreciation of the domestic currency will lead to an increase in the price of imports, resulting in a decrease in aggregate demand.
➡️ On the other hand, an appreciation of the domestic currency will lead to a decrease in the price of exports, resulting in an increase in aggregate demand.
➡️ The aggregate supply (AS) curve is also affected by exchange rate changes. A depreciation of the domestic currency will lead to an increase in the cost of production, resulting in a decrease in aggregate supply. An appreciation of the domestic currency will lead to a decrease in the cost of production, resulting in an increase in aggregate supply.
How does an increase in income affect the level of real output?
An increase in income will lead to an increase in the level of real output as households and businesses have more money to spend on goods and services. This increased spending will lead to an increase in demand for goods and services, which will in turn lead to an increase in production and output.
How does a change in the price level affect employment?
A change in the price level can have a significant impact on employment. If the price level increases, businesses may be less likely to hire new employees as their costs of production increase. On the other hand, if the price level decreases, businesses may be more likely to hire new employees as their costs of production decrease.
How does an increase in employment affect the price level?
An increase in employment can lead to an increase in the price level. As more people are employed, they will have more money to spend on goods and services, which will lead to an increase in demand. This increased demand will lead to an increase in prices as businesses try to meet the increased demand.