Question

In: Economics

Which of the graphs in Figure 20-8 illustrates the AD-AS shifts associated with a currency depreciation?

Figure 20-8



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Which of the graphs in Figure 20-8 illustrates the AD-AS shifts associated with a currency depreciation?

a.1
b.2
c.4
d.3

Solutions

Expert Solution

Option D.

  • When a currency depreciates, its value decreases which increases it's net exports and the imports become more costly this will increase the aggregate demand.
  • Depreciation of currency will cause the price of domestic goods and services to fall when compared to the supply of foreign goods and services.
  • This shift the Aggregate supply curve to the left when the currency depreciates.
  • This shifts are illustrated by the 3rd graph in the above figure.

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