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Question
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Posted 10 months ago

Read →\rightarrow as "leads to."
Which of the following best describes the chain of events that will occur if the value of the U.S. dollar appreciates?

Choose 1 answer:
(A) exports ↑→\uparrow \rightarrow Aggregate demand (AD) ↑\uparrow
(B) exports ↓→\downarrow \rightarrow Aggregate demand (AD) ↓\downarrow
(C) exports ↓→\downarrow \rightarrow no change in Aggregate demand (AD)
(D) exports ↓→\downarrow \rightarrow Aggregate demand (AD) ↑\uparrow
(E) There will be no change in exports or Aggregate demand (AD)
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Answer from Sia
Posted 10 months ago
Solution by Steps
step 1
Understand the relationship between currency appreciation and exports: When the value of a country's currency appreciates relative to other currencies, its exports become more expensive for foreign buyers
step 2
Analyze the impact on Aggregate Demand (AD): An increase in the price of exports can lead to a decrease in the quantity of exports sold, which would reduce the net exports component of Aggregate Demand
step 3
Apply the information to the answer choices: Since an appreciation of the U.S. dollar would make exports more expensive and potentially decrease their quantity, Aggregate Demand would likely decrease as a result of reduced net exports
Answer
B
Key Concept
Currency appreciation and its impact on exports and Aggregate Demand
Explanation
An appreciation of a country's currency typically leads to a decrease in exports, which in turn reduces Aggregate Demand.

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