Which of the following will most likely occur in the United States as the result of an unexpected rapid growth in real income in Canada and Mexico?
A) an increase in aggregate demand and output in the short run
B) an reduction in aggregate demand and output in the short run
C) a reduction in the price level
D) a decrease in the natural rate of unemployment in the United States

Question

Quizplus · Accepted Answer

An unexpected rapid growth in real income in Canada and Mexico will cause an increase in income in these countries, leading to an increase in imports from the United States. This, in turn, will increase U.S. exports and hence, an increase in aggregate demand and output in the short run. A reduction in aggregate demand, reduction in price level or decrease in the natural rate of unemployment is unlikely to occur as a direct result of this growth in real income.

Which of the Following Will Most Likely Occur in the United