What effect would economic weakness in Europe due to a sovereign debt crisis have on the U.S.economy?
A) The IS curve shifts to the right.
B) The IS curve shifts to the left.
C) Potential GDP increases.
D) Potential GDP decreases.

Question

Quizplus · Accepted Answer

Economic weakness in Europe due to a sovereign debt crisis would likely lead to reduced demand for U.S. exports to those countries, as well as decreased investment in the U.S. by European companies. This would shift the IS curve to the left, indicating a decrease in both output and interest rates, and likely result in a decrease in potential GDP.

What Effect Would Economic Weakness in Europe Due to a Sovereign