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Chapter 23: Q 3. (page 617)

鈥淭he appreciation of the dollar from 2012 to 2017 had a negative effect on aggregate demand in the United States.鈥� Is this statement true, false, or uncertain? Explain your answer.

Short Answer

Expert verified

The statement is true.

Step by step solution

01

Step 1. Define aggregate demand and aggregate supply.

Aggregate demand is defined as the total amount of demand produced in the economy for all finished goods and services.

Aggregate supply, often known as total production, is the total amount of products and services in a given economy over a certain time period at a given overall price.

02

Step 2. Is the given statement is true or false?

The claim is correct. According to the aggregate demand and supply analysis, an increase in the value of the US dollar reduces net exports and shifts the aggregate demand curve downward and to the left, lowering production.

When the value of the US dollar rises, US exports become less viable in the worldwide market. Exports are a component of aggregate demand, hence a reduction in exports affects total demand.

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Most popular questions from this chapter

In the aftermath of the financial crisis in the United States, labor mobility has decreased significantly. How, if at all, might this affect the natural rate of unemployment?

The Problems update with real-time data in My Lab Economics and are available for practice or instructor assignment.

1. Go to the St. Louis Federal Reserve FRED database, and find data on real government spending (GCEC1), real GDP (GDPC1), taxes (WO06RC1 Q 027 SBEA), and the personal consumption expenditure price index (PCECTPI), a measure of the price level. Download all of the data into a spreadsheet, and convert the tax data series into real taxes. To do this, for each quarter, divide taxes by the price index and then multiply by 100 .

a. Calculate the level change in real GDP over the four most recent quarters of data available and the four quarters prior to that.

b. Calculate the level change in real government spending and real taxes over the four most recent quarters of data available and the four quarters prior to that.

c. Are your results consistent with what you would expect? How do your answers to part (b) help explain, if at all, your answer to part (a)? Explain using the IS and A D curves.

Why did the Federal Reserve pursue inherently recessionary policies in the early 1980 s?

Suppose the inflation rate remains relatively constant while output decreases and the unemployment rate increases. Using an aggregate demand and supply graph, show how this scenario is possible.

In its statement dated June 14,2017 , the Federal Open Market Committee indicated that inflation "is running somewhat below 2% . Go to http://research stlouisfed .org/fred2/, and click on the Series ID link "CPIAUCSL" (Consumer Price Index for All Urban Consumers: All Items-SA). Then click on the link "Percent Change from Year Ago." What has happened to the inflation rate since the time of the last reported value in Figure 16 ?
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