Question

Will the aggregate quantity of goods and services demanded become more sensitive or less sensitive to changes in the price level if an economy becomes closed (that is, as foreign trade disappears)? In terms of the AD/AS diagram, will the AD curve become steeper or flatter?

Answer 1

@Lukecrayonz

Answer 2

Okay, so just imagine if I am Mcdonalds, and suddenly Wendys and Burgerking close down

Answer 3

The demand will increase incredibly for McDonalds

Answer 4

Right

Answer 5

So the demand will become more sensitive then?

Answer 6

Yes as if Mcdonalds raises prices, everything changes.

Answer 7

But say Wendys was still open, then if Mcdonalds starting charging $10 a burger nobody would go and Wendys would level out the price level.

Answer 8

So now if the demand becomes more sensitive, the ad/as curve will become flatter?

Answer 9

I don't know about the steepen or flatten part, sorry :X

Answer 10

I'm assuming flatten as

Answer 11

Oh ok, would you mind continuing to help me on some of these problems? I would really appreciate it

Answer 12

There is an increasing trend of globalization in the world, part of which is manifested in credit and input markets. It could be argued that this will cause interest rates to be determined in international credit markets rather than in national credit markets, and most small, national fluctuations will have no effect. How might this change the relationship between the aggregate quantity of goods and services demanded and the price level in a nation's economy? That is, In terms of the AD/AS diagram, will the AD curve become steeper or flatter?