Question

Using Aggregate Demand and Aggregate Supply, describe the impact of the trade war between the US and China on the US economy.

Answer 1

As the tariffs are imposed on the goods coming from China and China has imposed counter tariffs on the US goods, lack of goods coming in the market will reduce the supply and shift the aggregate supply curve to the left, the lack of US exports in the world market will reduce the aggregate demand and shift the AD curve to the left.

Both the aggregate demand and aggregate supply curve will shift to the left the new GDP in the market will be at a lower level of GDP and price change in the market will be indeterminate.