Question

Fill in the blanks with the following numbers, not the words, for this and all the questions that follow. Jot them down so you won't have to keep scrolling up to the top to see what they are:

• Demand = 1
• Supply = 2
• Right = 3
• Left = 4
• Up = 5
• Down = 6

QUESTION 6

Suppose the dollar were to strengthen in international currency markets. That is, the price of the dollar, in terms of other national currencies, went up. This could have two effects on the American economy. First, the price of foreign products (as perceived by American consumers) would go A)________, and the price of American goods (as perceived by foreign consumers) would go B)________. Both of these phenomena would cause exports to go C)_________ and imports to go D)__________. In turn, the Aggregate E)_________ curve would shift to the F)________, causing output to go G)__________ and the price level to go H)________. On the other hand, however, foreign input prices (as perceived by American firms) would go I)___________. This would shift the Aggregate J)__________ curve to shift to the K)_____________ resulting in the level of output going L)__________ and the price level going M)__________.

Answer 1

A) Down. It is because now fewer dollars is required to buy the goods at previous foreign price.

B) Up. It is because now more dollars are required by foreigner to buy American goods.

C) Down. It is because domestic goods are dearer for foreigners.

D) Up. It is because foreign goods are now cheaper.

E) Demand. It is because export and import are the component of AD.

F) Left. It is because net export will fall and AD will reduce.

G) Down. It is because export will reduce and so AD.

H) Down. It is because domestic goods now have less demand.

I) Down. It is because now it is cheaper to buy from foreign due to strong domestic currency.

J) Supply. It is because lower input price will affect supply.

K) Up. It is because lower input price will make production profitable.

L) Up. It is because producer will plan to manufacture more.

M) Down. It is because more goods are now available in the market.