Question

5) In late last year starting from November 2018, the stock markets in the Wall Street has shown an unexpected level of ups and downs (with almost wiping out 2018 gains in equity market) mainly attributed to the uncertainty caused by Trump's Trade War policy with China and EU, falling oil prices, and other possible cutting govt. programs (in an effort to reduce budget deficit). In the process, the value of the S has also shown a high degree of volatility against the Euro, the Yuan (Renminbi), yen and many other major currencies. A) Given the current condition of the US economy, do you think US policy makers would prefer to see the $ rise in value, decline in value or stay at its current value? Discuss the advantages and disadvantages to the US economy at this time of a stronger vs. a weaker S. Frame your answer in terms of the current Aggregate Demand and A ate Supply situation of the US econom 3pts B) Draw an AS/AD diagram to illustrate your answers for Question A) above. Clearly label axes and the current position of AS & AD relative to full employment RGDP....also indicate any shifts that would occur if the exchange rate of the S rose sharply against other maior currencies 3pts.

Answer 1