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Graphs of AD-AS Shifts & Effects on GDP and CPI

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.

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Solution Summary

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.