Question

Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. 1. Refer to Scenario 33-1. What would the change in the exchange rate make happen to U.S. net exports and U.S. aggregate demand

Answer 1

Because of the political instability, what will happen to U.S. is that its Net exports would fall which by itself would decrease U.S. aggregate demand.

When the people from other countries feared for their asset, they will stop importing goods from U.S.

• This will make import reduce and also, the export from U.S. to reduce as well.

In conclusion, because of the political instability, what will happen to U.S. is that its Net exports would fall which by itself would decrease U.S. aggregate demand.

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