Assume the countries of Ornania and Kumbagi are major trading partners. Ornania is currently in long-run macroeconomic equilibrium. As a result of a recession in its economy, Kumbagi decreases its demand for goods produced in Ornania. What will occur in Ornania in the short run?

Question

Lorenzo

Business

13 January, 22:38

Assume the countries of Ornania and Kumbagi are major trading partners. Ornania is currently in long-run macroeconomic equilibrium. As a result of a recession in its economy, Kumbagi decreases its demand for goods produced in Ornania. What will occur in Ornania in the short run?

+1

Answers (1)

Know the Answer?

Rosemary Parks · Answer 1

Answer: The aggregate demand curve will shift to the left, resulting in a recessionary gap

Explanation:

Since Ornania and Kumbagi are trading partners and Kumbagi later reduced its demand for the goods produced in Ornania, this will lead to the aggregate demand curve shifting to the left in Ornania and can lead to a recessionary gap.

The aggregate demand curve will shift to the left because there is a reduction in demand. Contractionary fiscal policy is also another reason for a shift in the aggregate demand curve to the left.