Mauritius, an island off the coast of Africa, competes with other countries producing goods with low-skilled labor. In 2006, it was reported that its "... factories have been exposed to ... competition from China, India and other Asian mass producers." As a result, "the main export industry has seen a 30 per cent reduction in volume..."
Www)ft.com, 3/13/2006
The decrease in exports represents a change in ________ expenditure and will cause ________.

Question

Quizplus · Accepted Answer

The decrease in exports is an autonomous change in expenditure, meaning it is not directly caused by changes in income or prices. This will result in a downward shift in the AE (aggregate expenditure) curve, as exports are a component of AE. This will also cause a leftward shift in the AD (aggregate demand) curve, as lower exports will lead to a reduction in overall demand in the economy.

Mauritius, an Island Off the Coast of Africa, Competes with Other