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Ch 5 Global Trade [AP & Reg]

Rates increasepricelevel increasegrowthrate

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Unformatted text preview: want more Japanese cars, computers, DVD players, digital cameras, and camcorders.” D2 S “Booming” Economy AS AD2 AD1 YR Y* # of A Decrease in U.S. Growth Rate (Y) Decrease Recessionary Economy [We buy less from Japan AS AD1 AD2 depreciating the yen and PL appreciating the dollar] YR Y* Price of $1.00 .50 D1 A S D2 D Quantity of “Five million of us have lost our jobs. We can’t buy as many American or Japanese products.” 1.) Cheaper goods (lower prices) 2.) High interest rates 3.) Popular items (taste) This is because money is really only good for: a. Stuff now so cheaper prices are more beneficial. b. Popular items are also stuff wanted now as they are also perceived to be more beneficial. c. Stuff later (in which case you need more money), and the way you get more money is to loan it, hence benefiting from a higher interest rate. Again, remember, the country who initiates the action: 1.) buying more foreign goods [because of taste, lower PL, or more income], 2.) invests more based on higher interest rates overseas, etc. is the country whose supply of currency moves. The country being acted upon, is the country whose demand for their...
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