Using supply and demand graph as well as written explanations, explain what would happen to Japan’s aggregate demand, aggregate supply, the equilibrium price level and the equilibrium real output (GDP) for each of the following scenarios:
a. The Iranian navy blocks the Strait of Hormuz through which 30% of oil is supplied to the world oil market.
b. The Transpacific Partnership is passed by the Japanese Congress which eliminates all tariffs on Japanese exports and imports to final goods
c. The Japanese government increases government spending while as the same time the Bank of Japan raises the real interest rate.
d. Japan is hit by a massive earthquake and tsunami that destroys a great part of Honshu, the country’s main island.

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In each of the following graphs AD0 and SRAS0 are initial aggregate demand and shortrun aggregate su... View the full answer