n Ciudad Barrios, El Salvador, the latest payments from relatives working in the United States have finally arrived. When the credit unions open for business, up to 150 people are already waiting in line. After receiving the funds their relatives have transmitted to these institutions, customers go off to outdoor markets to stock up on food or clothing or to appliance stores to purchase new stereos or televisions. Similar scenes occur throughout the developing world, as each year migrants working in higher-income, developed nations send around $200 billion of their earnings back to their relatives in less developed nations. Evidence indicates that the relatives, such as those in Ciudad Barrios, typically spend nearly all of the funds on current consumption.
Part 2
a. Based on the above information, developing countries' income inflows transmitted by migrant workers are primarily affecting their economies' long-run aggregate demand curves.
Part 3
b. The equilibrium price levels in nations that are recipients of large inflows of funds from migrants will likely
A. be unchanged because although people in the less developed nations buy more goods, there will be fewer exports.
B. rise because there is an increase in the aggregate demand in these countries.
C. rise because there is a decrease in the short-run aggregate supply in these countries.
D. fall because the fall in exports will be greater than the rise in consumption.