3. China and Japan do a lot of international trade with each other. If both coun

Question

3. China and Japan do a lot of international trade with each other. If both countries begin in general equilibrium and then the Peoples’ Bank of China (the central bank) engages in an autonomous monetary policy tightening:

a. The Japanese AD curve shifts to the right.
b. The Japanese AD curve shifts to the left.
c. The Japanese AD curve shifts to the right and the Japanese AS curve will eventually shift up.
d. The Japanese AD curve shifts to the left and the Japanese AS curve will eventually shift down.

Explanation / Answer

well, net exports will go down (since china will have less demand)

d. The Japanese AD curve shifts to the left and the Japanese AS curve will eventually shift down.

in theory, they could just start trading with more people, because in the long term everything works out demand side.

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