Question

Explain in a few sentences the consequences of an increase in the U.S. exchange rate (an appreciation of the $ versus other currencies) make U.S. exports and GDP.

Answer 1

An appreciation in the value of the US currency will make the US goods costlier for the rest of the nations and shift the demand curve to the left, This is because now the nations importing from the US will have to pay a higher price for the goods due to a higher value of the US currency, On the other hand, this will increase the imports in the US as the imports are now cheaper and US consumers will have to pay less for the imported goods.,

Overall, both of this effect combined will shift the AD curve to the left and decrease the Net exports and new equilibrium in the economy will be at a lower price and lower level of GDP.