Question

In: Economics

What happens when the dollar appreciates? a. Net exports increase, and aggregate demand shifts right. b....

What happens when the dollar appreciates?

a.

Net exports increase, and aggregate demand shifts right.

b.

Net exports increase, and aggregate demand shifts left.

c.

Net exports decrease, and aggregate demand shifts right.

d.

Net exports decrease, and aggregate demand shifts left.

Solutions

Expert Solution

Ans: Net exports decrease, and aggregate demand shifts left.

Explanation:

When the dollar appreciates, it means the exchange rate increases. So, the relative price of domestic goods and services will increases and the relative price of foreign goods and services will fall. This change in relative prices will decrease U.S. exports and increase U.S imports. Thus, the aggregate demand will decrease leading to a leftward shift in the aggregate demand curve.

Thus, option [d] is correct answer.

Rahul Sunny answered 2 years ago
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