Using the aggregate demand-aggregate supply model, explain how thedepreciation of the US dollar in terms of foreign currencies wouldaffect the economy.
State in what happens to the Aggregate demand curve, Aggregatesupply curve, The price level, and The real GDP.
I said the AD curve shirts right as demand increases for domesticconsumption (since imports are costlier), and because internationalfirms find US goods cheaper. The aggregate supply curve would moveto the left, since it costs more to produce these goods as theexchange rate is lower, and since there is an influx in overalldemand causing shortages. The price level would go up sinceimported raw materials increase in cost to continueproduction.
I am a bit confused on the Real GDP. Could it go UP from the risein domestic good demand, or would it go down due to dollardepreciation? Thanks again in advance for you help!
Using the aggregate demand-aggregate supply model, explain how thedepreciation of the US dollar in terms of foreign currencies wouldaffect the economy.
State in what happens to the Aggregate demand curve, Aggregatesupply curve, The price level, and The real GDP.
I said the AD curve shirts right as demand increases for domesticconsumption (since imports are costlier), and because internationalfirms find US goods cheaper. The aggregate supply curve would moveto the left, since it costs more to produce these goods as theexchange rate is lower, and since there is an influx in overalldemand causing shortages. The price level would go up sinceimported raw materials increase in cost to continueproduction.
I am a bit confused on the Real GDP. Could it go UP from the risein domestic good demand, or would it go down due to dollardepreciation? Thanks again in advance for you help!
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