An exchange rate shock coupled with austerity would tend to:
A) lower real GDP.
B) raise real GDP.
C) increase SRAS.
D) lower LRAS.
E) none of the above

Question

Quizplus · Accepted Answer

Austerity policies typically involve government spending cuts and tax increases, which can decrease aggregate demand and therefore lower real GDP. Additionally, an exchange rate shock can cause fluctuations in trade and investment, potentially further reducing aggregate demand and real GDP.

An Exchange Rate Shock Coupled with Austerity Would Tend To