Economics: Principles & Policy
Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 36, Problem 1DQ
To determine

Effect of rapid growth of Japan in U.S economy.

Expert Solution & Answer
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Explanation of Solution

The American exports increases rapidly due to the speedy growth in the Japanese economy, and this would have a multiplied expansionary effect upon GDP. The boost in exports would entail an increase in the demand for the US dollar, and as a result of an increase in the dollar value, this application would reduce somewhat (but not completely) the increase in exports. On the other hand, it would boost aggregate supply, and this would strengthen the expansionary effect on GDP. The effect of Japanese growth on American inflation would be vague: the increase in aggregate demand would increase prices, while the increase in the dollar value would reduces the cost of imports and creates deflationary situation.

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