Question

14 Question (1 point) The following figure depicts the aggregate demand curve (AD), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS) for the United States. The economy is initially at long-run equilibrium, at point A. In addition to the crash of the stock market and a subsequent fall in expected future income, the Great Depression was also partially caused by a change in legislation regarding trade. In 1930, Congress passed the Smoot-Hawley Tariff Act. This legislation imposed tariffs (taxes) on thousands of imported goods and set off a global trade war as other nations reacted by imposing tariffs on U.S. exports. These tariffs on imports into the United States made imports more expensive. In the figure below, shift the appropriate curve to depict the effect of the United States imposing tariffs on imports as a possible cause of the Great Depression. Price Level (P) LRAS1 SRAS1

Answer 1

When US goods become more expensive, US export demand will fall, decreasing US net exports and reducing US aggregate demand. AD curve will shift left to AD2, intersecting SRAS1 at point B with lower price level P2 and lower GDP Y2.

Price Level (P) LRAS1 SRAS1 AD1 AD2

Answer 2

shift the SRAS2 curve left

Many industries in the United States use imports as intermediate goods in the production of final goods. Therefore, raising the price of imports will have an impact on the production of final goods.