(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
For this problem, you are going to examine a series of events and how each in turn affects the aggregate demand and aggregate supply schedules. The first part asks you to examine the effects of an increase in the value of the dollar in relation to other currencies.
(Description)
Using the AD/AS model, in the short run, determine whether the events cause a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the change. As a result of an increase in the value of the dollar in relation to other currencies, American producers now pay less in dollar terms for foreign steel, a major commodity used in production. On the Figure there are graphs of aggregate supply and demand. Horizontal axis corresponds to the real GDP. Vertical axis corresponds to aggregate price level. Two straight lines (supply and demand) are plotted with supply line starting at origin and bisecting the quadrant and demand line crossing the axes at some equally distant from origin points. Lines intersect at point (Y1,P1). Lines are labeled AD and AS correspondingly.
(Speaker)
Specifically, it states that American producers now pay less in dollar terms for foreign steel, a major commodity used in production. How will this affect real GDP and the aggregate price level? As the value of the dollar, in terms of other currencies, increases and American producers pay less in dollar terms for foreign steel, producers' profit per unit increases and they're willing to supply a greater quantity of aggregate output at any given price level. The short-run aggregate supply curve will shift to the right.
(Description)
On the Figure there are graphs of aggregate supply and demand. Two straight lines (supply and demand) are plotted with supply line AS starting at origin and bisecting the quadrant and demand line AD crossing the axes at some equally distant from origin points. Lines intersect at point (Y1,P1). The line parallel to original supply line and shifted to the right is plotted and labeled AS2. The new point of intersection for supply AS2 and original demand lines is found and labeled (Y2,P2). Arrow along aggregate price level axis is plotted down from P1 to P2. Arrows show the right shift of supply line.
(Speaker)
This question specifically discusses production costs. It is also reasonable to expect an increase in the value of the dollar to shift the AD curve as well. Americans will import more goods and export less, causing AD to shift left.