Assume the United States economy is currently experience inflation. Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following.
Current price level, labeled PL1
Current output, labeled Y1
Show the impact of the inflation on the international value of the dollar when compared to the Euro. Use a well labeled foreign currency market graph to demonstrate your change.
What will be the effect on United States exports to the euro zone? Explain.
On your graph in part (a), show the effect of the change identified in part (b) (i) on real output in the United States.
What will be the effect of the change identified in part (b)(ii) on unemployment in the United States?
Assume the United States implements a expansionary fiscal policy to solve the problem.
Name two fiscal policy solutions that would solve the inflation.
Graph the change described in part A on a correctly labeled AD / AS graph. Show the change in price level and output.
What would happen to the interest rates in the United States with this change in fiscal policy. Explain.