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

Question

Quizplus · Accepted Answer

A leftward shift in SRAS and a rightward shift in AD both represent a decrease in the economy's ability to produce goods and an increase in aggregate demand respectively. A dollar depreciation would make imports more expensive and exports less expensive, leading to a decrease in domestic supply and an increase in demand, which would shift AD to the right. A rise in US real interest rates would lead to increased foreign investment in the US, resulting in a higher exchange rate and a lower demand for US exports, which would shift SRAS to the left. Therefore, a dollar depreciation and a rise in US real interest rates would cause a leftward shift in SRAS and a rightward shift in AD simultaneously.

A Simultaneous Leftward Shift in SRAS and Rightward Shift in AD