Q1. According to the Wall Street Journal, the value of U. S. dollar relative to the...

Q1. According to the Wall Street Journal, the value of U. S. dollar relative to the value of foreign currencies has significantly risen since the last election. Assuming that the economy is currently in the long-run macroeconomic equilibrium, use the AD-AS model and analyze how an increase in the value of U.S. dollar will affect the U.S. economy. In each case, be sure to label the initial equilibrium and new equilibrium including the equilibrium price and equilibrium GDP.

1. Draw a basic AD and SRAS graph (with LRAS constant) showing the economy in the long-run equilibrium. (1pt)

2. How does it change the short-run macroeconomic equilibrium? Briefly explain and illustrate it on your graph. (2pts)

3. How does the economy adjust back to long-run equilibrium? Briefly explain and illustrate it on your graph. (2pts)

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Expert Solution

Rahul Sunny answered 1 year ago

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