How does Trump's new tariff on imported goods (25% steel and 10% aluminum) affect the aggregate demand and supply of the economy?
The tariff will increase the prices of Steel and Aluminium in the economy. these are basic raw materials used in construction and other manufacturing goods and services. An increase in the price of input of these goods and services will therefore increase their cost of production and decrease their supply.
In the short run there will be a leftward shift of the aggregate supply curve. This is expected to increase the price level and decrease the real GDP in the short run. Aggregate demand is unlikely to be affected because steel and Aluminium are not used as final goods.
How does Trump's new tariff on imported goods (25% steel and 10% aluminum) affect the aggregate...