During the early 1990s, the U.S. economy slowly emerged from a recession. Consumption and investment expenditures rose.
Question:
During the early 1990s, the U.S. economy slowly emerged from a recession. Consumption and investment expenditures rose. At the same time, the dollar depreciated against the Japanese Yen. Using the income-expenditure (with 45-degree line) and import-export diagrams,
Illustrate the effect of the rise in consumption and investment on the U.S. income and on the U.S. current account. Label your graph carefully, and explain.
Illustrate the effect of the dollar depreciation on the U.S. income and on the U.S. current account. Label your graph carefully, and explain.
In the early 1990s, Japan entered a recession. Consumption and investment declined. And, as noted above, the Yen appreciated against the dollar. Illustrate the effect of reductions in consumption and investment expenditure on Japanese income and on the Japanese current account. Label your graphs carefully, and explain.
Illustrate the effect of the Yen appreciation on Japanese income and on the Japanese current account. Label your graphs carefully, and explain.
Would the effect of the change in U.S. income that you described in part (a) magnify or dampen the change in Japanese income (GDP) that you described in part (c)? Explain.
Would the effect of the change in Japanese income that you described in part (c) magnify or dampen the change in U.S. income that you described in part (a)? Explain.
Expert Answer:
What Is the Income Effect The income effect in microeconomics is the change in demand for a good or service caused by a change in a consumers purchasing power resulting from a change in real income Th... View the full answer
