Using aggregate supply and aggregate demand analysis, explain what effects, if any, the following changes have on each nation's Price Index and real GDP. Explain and show with appropriate supply & demand graph for each.
a) U.S.: A cold snap hits the southern part of the U.S & destroys 25% of the crops
b) China: The People's bank of China tightens monetary policy
c) Japan: The yen appreciates relative to the British Pound
d) Greece: The Greek government's budget deficit is reduced drastically in order to meet the conditions of the European Monetary Union's Stability & Growth Pact.
e) Japan: Japan's saving rate falls due to the nation's aging population.
f) U.S.: Turmoil between Irag and Iran causes a sharp increase in the price of oil.
g) U.S.: The U.S. housing market crashes, causing wealth to fall for a large cross section of the U.S.
h) Mexico: The government increases its spending and cuts taxes to stimulate the economy/
i) China: China's government spending increases significantly & state banks make loans to inefficient state enterprises rather than to more qualified borrowers.
This solution uses graphs to illustrate the effects of 9 different shocks to national economies. Each graph shows the shift of the Aggregate Demand and/or Aggregate Supply curve and explains the effect on equilibrium price level and GDP.