In recent years, the economy of Siliconia enjoyed a major boom driven by soaring global demand for advanced microchips and semiconductors, which constitute over 40% of its total export value. However, global market saturation and high interest rates abroad have triggered a sharp global contraction in tech spending. Overseas distributors have rapidly cancelled orders, leading to a massive surplus of unsold domestic microchips. Industry reports project that Siliconia's export revenues will plummet by up to 25% over the next two fiscal quarters. Economists warn that this collapse in international demand will ripple through the domestic economy, dampening business investment and lowering household incomes.
Extract G states that "export revenues will plummet by up to 25% over the next two fiscal quarters."
Using an AD/AS diagram to help you, explain the likely effect of this "collapse in international demand for exports" upon real national output and employment in Siliconia.
222 exam-style questions on AQA A Level Economics 2.2 How the macroeconomy works: the circular flow of income, aggregate demand/aggregate supply analysis and related concepts, covering 2.2.1 The circular flow of income, 2.2.2 Aggregate demand and aggregate supply analysis, 2.2.3 The determinants of aggregate demand, 2.2.4 Aggregate demand and the level of economic activity, 2.2.5 Determinants of short-run aggregate supply, and 2.2.6 Determinants of long-run aggregate supply. Each one has a worked solution and a mark scheme showing where the marks go.