Suppose the U.S. economy is producing at the natural rate of output. An appreciation of the U.S. dollar will cause ________ in real GDP in the short run and ________ in inflation in the long run,everything else held constant. (Assume the appreciation causes no effects in the supply side of the economy. )
A)an increase;an increase
B)a decrease;a decrease
C)no change;an increase
D)no change;a decrease

Question

Quizplus · Accepted Answer

An appreciation of the U.S. dollar makes U.S. goods more expensive for foreign buyers, reducing exports and thus decreasing real GDP in the short run. In the long run, the reduced demand can lead to lower inflation.