ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Export costs rise: If the U.S. dollar appreciates, foreigners will find American goods more expensive because they have to spend more for those goods in USD. That means that with the higher price, the number of U.S. goods being exported will likely drop.

Detailed explanation-2: -If the dollar appreciates (the exchange rate increases), the relative price of domestic goods and services increases while the relative price of foreign goods and services falls. 1. The change in relative prices will decrease U.S. exports and increase its imports.

Detailed explanation-3: -The appreciation of the dollar will see to it that exports become costlier, so they will decrease in volume. Imports, on the other hand, will become cheaper, so they will increase in volume. The increase in imports and decrease in exports will result in a decrease in aggregate demand across the US.

Detailed explanation-4: -Effects of appreciation An appreciation in the exchange rate will tend to reduce aggregate demand (assuming demand is relatively elastic) Because exports will fall and imports increase.