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European Union Technology Strategy

In: Business and Management

Submitted By smfmets18
Words 510
Pages 3
Macroeconomics 100
Paper Two, Topic A

If the European Union develops new technology that lowers the costs of producing goods that they export, the opportunity cost of producing decreases, and they can increase the amount of goods that they supply. As a result, the new quantity supplied would be higher than the quantity demanded, a surplus would form, and the two markets will move into equilibrium where the price level is lower and the quantity supplied is greater than before. An overall lower price of goods in the European Union will increase domestic and foreign demand for their products. Citizens in the EU will substitute more expensive foreign goods for domestic goods and the quantity demanded for domestic goods will increase. Exports for the EU will increase, as foreigners are drawn into their lower prices. Imports will decrease because citizens of the EU are buying more domestic goods than foreign goods. The balance of trade in Europe will initially increase, as net exports are increasing. Due to the increases in production technology, the net exports in Europe are increasing. Because net exports are a component of real GDP, real GDP will increase. With an increase in real GDP comes an increase for the demand for money, as businesses and companies need more money to fuel their expansion. In return, banks will begin to increase interest rates on investment, making European financial assets more attractive to investors. The increased demand for European money on account of the increase in real GDP, the increase of foreign demand for European goods, and the higher benefits of investing in Europe will cause the euro to appreciate relative to the rest of the world. This means that the euro is worth more than it was previously, and has more buying power than it did before its appreciation. Now, the exchange rates for the European union will increase. It now

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