If Canadian university students decide that drinking Mexican-brewed beer helps one get noticed, net exports will tend to fall, causing aggregate demand to ________ and the ________ curve to shift to the left, everything else held constant.
A) fall; LM
B) fall; IS
C) rise; LM
D) rise; IS

Question

Quizplus · Accepted Answer

When Canadian university students increase their consumption of Mexican-brewed beer, it implies an increase in imports from Mexico. This increase in imports would lead to a fall in net exports. A fall in net exports would decrease aggregate demand, causing the IS curve, which represents the relationship between interest rates and levels of output that are consistent with equilibrium in the goods market, to shift to the left. The LM curve, which represents equilibrium in the money market, is not directly affected by changes in net exports.

If Canadian University Students Decide That Drinking Mexican-Brewed Beer Helps