For years, the U.S. government has been trying to get Japan and the European Union to expand their economies faster. Explain how more rapid growth in Japan would affect the U.S. economy.

Explanation
Rapid growth in country J would cause an economic boom leading to a rise in the income of the Country J citizens. Consequently, they would be demanding more of the imported goods from different countries some of which would arrive from Country U.

This raises the exports of Country U and since the net export is a component of aggregate demand, its aggregate demand would also rise. It leads to a multiplied expansionary effect on the GDP. The price level would also rise.

However, an increase in the exports would also cause a rise in the demand for Country U dollars which in turn would cause the dollar to appreciate. This would mitigate some of the increase in its exports, but on a net basis, the exports would rise.

Appreciation in the value of Country U's dollar would lower the costs of the imported inputs and thus would lead to an increase in the aggregate supply of the country consequent to which the price would decline and the GDP would increase further.

The net effect on Country U's prices is ambiguous and depends on the relative increase in the aggregate demand and the aggregate supply.

Verified Answer
Rapid growth in Country J would raise the demand for imported goods consequent to which Country U's exports would rise. Higher net exports causes the aggregate demand to increase and thus the GDP of Country U would rise.

Higher exports also raises the demand for the dollar leading to an appreciation in its value and this would raise the aggregate supply in Country U. Higher aggregate supply would further increase its GDP.