Author Question: Everything else equal, how will a decrease in the interest rate in Mexico affect Mexico's GDP? ... (Read 79 times)

armygirl · **on:** Jun 30, 2018

Everything else equal, how will a decrease in the interest rate in Mexico affect Mexico's GDP?

What will be an ideal response?

Question 2

A firm's inventory piled up during a recession. How will its labor demand be affected when its excess inventory gets sold off eventually?

What will be an ideal response?

Awesome · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

A decrease in the interest rate in Mexico will cause a decrease in the willingness to invest in Mexico. This will cause a fall in the demand for pesos and cause it to depreciate. A depreciation of the peso will encourage exports and discourage imports causing net exports from Mexico to rise. This will cause an increase in the GDP of Mexico.

Answer to Question 2

The firm will increase its production after its excess inventory gets sold off after the recession. An increase in production will lead to an increase in its demand for labor. As a result, the firm's labor demand curve will shift to the right.