A simultaneous leftward shift in SRAS and rightward shift in AD may come from the dollar _______________ in the aftermath of a ____________________ in United States real interest rates.

Question

Quizplus · Accepted Answer

A leftward shift in SRAS suggests that the costs of production have increased, which could be due to a rise in the price of inputs or wages. A rightward shift in AD suggests an increase in demand for goods and services.

A depreciation in the dollar would make US exports comparatively cheaper, which would increase demand for US goods and increase AD. Meanwhile, a fall in real interest rates would make borrowing cheaper, which would increase investment and consumption, further increasing AD.

Therefore, a simultaneous leftward shift in SRAS and rightward shift in AD could occur due to a fall in United States real interest rates and a resulting depreciation in the dollar.

A Simultaneous Leftward Shift in SRAS and Rightward Shift in AD