q explain how a rise in real income, International Economics

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q explain how a rise in real income

Q. Explain how a rise in real income affects aggregate demand.

Answer: An increase in domestic real income Y leads to a rise in disposable income Yd. This increases the spending on imports IM therefore lowering the current account CA and reducing aggregate demand AD. Though, the rise in Yd as well causes a rise in consumption C and increases aggregate demand AD by more than the corresponding diminish.

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