Macro Jnu doubts

[Anjali]

@harish please explain ques 33.

[Granpa Simpson]

However if u see it from the point of indian economy..there will be no change in the AS, however as dollar has appreciated, the worth of imports in terms of rupee increases thereby reducing the demand for the imports and hence shifting the demand curve at a given price..!!!

[Anjali]

So supply shock from US's perspective ? Actually Iam not getting that what should be my reference point ? India or US ?

[Harish Kumar]

Since question is stated in terms of Dollar currency so we should treat US as main country i.e. with perspective of USA not India.

[Anjali]

But harish , appreciation of dollar will affect US supply of exports . So won't it lead to supply shock ?

[ViV]

Subhayu is taking India as domestic country.  His replies so far shows he is talking adverse supply effect on India.

[Harish Kumar]

Appreciation of US dollar means foreign goods are cheaper now
It means cost of production is now less
So supply increases rather supply shock
*appreciation or depreciation doesn't effect the purchasing power in US territory bcoz prices in US mkt has not changed.
Even if Appreciation doesn't lead to supply increase then it also not lead to supply shock

On Apr 17, 2014 8:52 PM, "Anjali [via Discussion forum]" <[hidden email]> wrote:

But harish , appreciation of dollar will affect US supply of exports . So won't it lead to supply shock ?

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NAML

[Harish Kumar]

This is my view
It may be possible that i am wrong but i guess i am right

On Apr 17, 2014 8:57 PM, "Harshit Chandna" <[hidden email]> wrote:

Appreciation of US dollar means foreign goods are cheaper now
It means cost of production is now less
So supply increases rather supply shock
*appreciation or depreciation doesn't effect the purchasing power in US territory bcoz prices in US mkt has not changed.
Even if Appreciation doesn't lead to supply increase then it also not lead to supply shock

On Apr 17, 2014 8:52 PM, "Anjali [via Discussion forum]" <[hidden email]> wrote:

But harish , appreciation of dollar will affect US supply of exports . So won't it lead to supply shock ?

---

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NAML

[Anjali]

@ harish you mean that app of US , which is the domestic country here , makes foreign goods cheap - so supply of imports increase ? Is that so ? What exactly does supply denote here ?

[Harish Kumar]

Supply could be anything produced by US.but if US production uses foreign goods as raw material then appreciation makes that raw material cheaper so does the cost of production and thus US firms increases their supply.
It is also the case that appreciation could be a cause of declining exports but generally supply shock is referred as a large decrease in supply from increased cost of production. So former effect should dominate latter.