ME

Q1)Due to the appreciation of yen Net exports declined rapidly and in addition t o that commodity prices spiked up which

led to high inflation during slower GDP growth. This stagflation was the main reason for fall in demand of the economy. Q2)As the value of currency appreciates exports become expensive and the country results in importing more products thus resulting in trade deficit. Thus people tend to consume imported products and the demand for domestic products drops. Q3)In normal circumstances introduction of expansionary monetary or fiscal polic ies would increase the Aggregate demand. For instance by increasing the Governme nt Expenditure and Tax cutting money supply would increase resulting in high inv estments and thus leading to higher aggregate demand. Q4)However in this case if government introduces expansionary policies this woul d result in inflation.As already the nation has high inflation this condition is not desired.Hence the government have to introduce a mix of internal and extern al policies such that Aggregate demand is increased but at the same time the pri ce level is untouched.This could only be done by shifting the Long term aggregat e supply curve as shown in fig.

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