Question

Examine for each event whether it changes the quantity of real GDP demanded or aggregate demand in Japan.

Japanese price level rises.:

Depreciation of yen attracts more tourists to Japan.:

Japan’s coal consumption rises due to a prolonged shut down of nuclear plants.

Japan’s sales tax rises.:

Answer 1

a) If Japanese price level rises, consumers will demand less of the goods which will reduce the quantity demanded of it and cause movement along the aggregate demand curve.

b) Depreciation of yen attracts more tourist to Japan which will raise consumption in Japan and raise aggregate demand in Japanese economy and raise real GDP demanded.

c) If coal consumption rises, there will be rise in aggregate demand in the economy and shift aggregate demand curve which raise quantity of real GDP demanded.

d) As Japan sales tax rises, there will be fall in consumption level which will reduce aggregate demand in the economy and result in fall in quantity of real GDP.

Note: Only a price change in economy cause change in aggregate demand or movement along the demand curve while any other factor affecting demand will change the quantity of real GDP.