Illustrate the effect of the 2011 Tsunami on the Japanese economy using the AD/AS model. Refer to the slide "Five Steps to Finding Macroeconomic Equilibrium," and the three examples from class as a reference. Be sure to clearly explain to your reader EXACTLY what is happening in your graph and why, as well as what the end results mean. Assume they have a basic understanding of economic theory but are not necessarily well versed in interpreting graphs. In order to receive full credit your graph must be clearly labelled (and correctly drawn), your written explanation should make reference to all of the changes shown and provide an insightful analysis of what is happening and why (using economic theory and terms/concepts from class). Your explanation does not need to be in essay format, but you will need to proofread. Spelling, grammar and punctuation count!
1. Draw a graph of the Japanese Economy before and after the Tsunami. *Hint: Keep in mind that the Tsunami was a massive disaster that caused widespread damage (some of which has still not been repaired). Clearly label all of the components of your graph, including the original and new equilibrium points. Your graph should show both SRAS and LRAS curves separately (as we did in class, rather than drawn as one curve the way your textbook shows.
2. Using the economic terms and concepts from class, explain what the impact of the Tsunami was on the Japanese economy, initially and in the long-run. Your graph should be used as a reference to support your explanations and conclusions. Be sure to define any terminology used that a casual reader would not understand and appropriately include the ceteris paribus assumption. Your answers may be brief, but should be complete and insightful.
3. How might the result shown above (the impact of the Tsunami on the Japanese economy) affect the U.S. economy (using AD/AS analysis)? Be sure to justify, and fully explain your answer. A graph is optional but not required. * What are the components of AD? Would this result in a recessionary or inflationary gap?