Question

ritical analysis Q10 Suppose that unexpectedly rapid growth in real income abroad leads to a sharp increase in the demand for American exports. What impact will this change have on the price level, output, and employment in the long run in the United States? Output and employment will increase exerting modest upward pressure on the price level. The price level will increase, with no change in output and employment.

Answer 1

Output and employment will increase exerting modest upward pressure on the price level.

Step-by-step explanation

In simple words, the increased demands for the good would work as an incentive for the producer to produce more and they can also lower their cost of production by producing in mass which will further lead to economies of scale.

More production means more requirement of workers which will eventually lead to more employment opportunities in the country. However, this increase would lead to modest increase in prices due to more purchaser power in the country.