Suppose the US permanently imposes trade restrictions. 11.1. In the short run (c

Question

Suppose the US permanently imposes trade restrictions. 11.1.   In the short run (compared to the original long run equilibrium), the US economy will experience a A.  CPI staying the same and GDP increase. B.  CPI increase and GDP increase. C.  CPI staying the same and GDP decrease. D.  CPI decrease and GDP staying the same. E.  CPI decrease and GDP decrease. F.  CPI decrease and GDP increase. G.  CPI staying the same and GDP staying the same. H.  CPI increase and GDP decrease. I.  CPI increase and GDP staying the same. 11.2.   In the long run (compared to the original long run equilibrium), the US economy will experience a A.  CPI decrease and GDP staying the same. B.  CPI increase and GDP decrease. C.  CPI staying the same and GDP staying the same. D.  CPI staying the same and GDP increase. E.  CPI increase and GDP staying the same. F.  CPI decrease and GDP decrease. G.  CPI decrease and GDP increase. H.  CPI increase and GDP increase. I.  CPI staying the same and GDP decrease. Suppose the US permanently imposes trade restrictions.

Explanation / Answer

a) Trade restriction in the economy will increase the price of the goods in the economy and it will increase the CPI, due to higher CPI the purchasing power of people will decrease and they will demand less. This will decrease the GDP of the nation.

The answer is "H".

b) IN the long run, compared to the original long run in the economy the CPI will decrease and the GDP will increase as the local firm will increase the production and fill the gap.

The answer is "G".   

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