1. In recent weeks markets around the world have been rattled by signs of a slowdown in growth of the Chinese economy, together with a massive sell–off in its stock market… plus a massive default by Greece on its debts to the IMF , the ECB and on its government bonds which will be averted only if it agrees to harsh budget austerity measures imposed by Germany and the rest of the European Union…In the process, the value of the $ has risen against the Euro, the Yuan and many other currencies.

Given the current condition of the US economy, do you think US policy makers would prefer to see the $ rise in value, decline in value or stay at its current value? Discuss the advantages and disadvantages to the US economy at this time of a stronger vs. a weaker $.  Frame your answer in terms of the current Aggregate Demand and Aggregate Supply situation of the US economy.

Draw an AS/AD diagram to illustrate your answer. Clearly label axes and the current position of AS, & AD relative to full employment RGDP….also indicate any shifts that would occur if the exchange rate of the $ rose sharply against other major currencies