If one country is hit with a shock that increases its income and its demands for imported goods and services from other countries, thus increasing aggregate demand in those countries, then the business cycle is being transmitted internationally through______ effect.

Question

Quizplus · Accepted Answer

This is called a trade effect. When one country's income and demand for imported goods increase, it leads to an increase in aggregate demand in other countries that export these goods. This is a transmission mechanism of the business cycle through trade.

If One Country Is Hit with a Shock That Increases