Agraria specializes in the production of cotton.However,cotton manufacturers in Agraria are expecting the demand for its exports to fall sharply because of growing competition from a neighboring country.Assuming all else equal,which of the following is likely to happen in this case?

Question

Quizplus · Accepted Answer

If demand for cotton exports falls sharply due to competition, it will lead to a decrease in consumption expenditure in Agraria as the cotton manufacturers will face a decrease in their revenue. This could lead to a contraction in the economy, causing a decrease in GDP and possible layoffs, thereby increasing unemployment. Investment expenditure and the equilibrium real wage are unlikely to be affected in the short run.

Agraria Specializes in the Production of Cotton