If the Aggregate supply curve is upward-sloping, increase in consumer expectatio

Question

If the Aggregate supply curve is upward-sloping, increase in consumer expectations and interest rates at the same are balanced off in GDP by changes in exports. will definitely increase the price level. lower GDP may raise or lower GDP depending on which effect is larger raise GDP. On October 31, 2011, Japan intervened in forex markets to cause the yen to weaken against the dollar. According to a recent Financial Times article (February 7, 2012). The U.S. criticized the Japanese government for this type of intervention. What is an explanation for the U.S. 's criticism? The U.S. was worried that U.S. consumers would buy fewer Japanese products. The U.S. was worried that Japanese consumers would buy more U.S. products, leading to shortages in the U.S. The U.S. was worried that U.S. producers competing with Japan would lose business. a and c only

Explanation / Answer

May rise or lower GDP depending on which effect is larger.

Suppose consumers expect the increasing price in future, which increases their demand now. At the same time, increase in interest rate reduces demand of products. Therefore, increasing consumer expectation has positive effect on GDP, which tends to increase GDP; and increasing interest rate has negative effect on GDP, which tends to decrease GDP. Net GDP may rise or fall based on which effect is larger.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.