ECONOMICS
AGGREGATE DEMAND
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
AD shifts right in the US
|
|
|
AD shifts left in the US
|
|
|
AD is unchanged in the US
|
|
|
AS shifts left in the US
|
Detailed explanation-1: -If the dollar depreciates (the exchange rate falls), the relative price of domestic goods and services falls while the relative price of foreign goods and services increases.
Detailed explanation-2: -If a currency appreciates it is more valuable; if a currency depreciates it is less valuable. When an exchange rate changes, the value of one currency will go up while the value of the other currency will go down.
Detailed explanation-3: -Economic Effects of a Declining Dollar A weaker dollar buys less in foreign goods. This increases the price of imports, contributing to inflation. As the dollar weakens, investors in the benchmark 10-year Treasury and other bonds sell their dollar-denominated holdings.
Detailed explanation-4: -However, as the dollar weakens, U.S. exports become cheaper to foreigners because they can get more U.S. dollars for the same amount of their currency to buy American goods. Even though the price of the exported goods hasn’t changed, foreigners essentially can buy U.S. goods at a discount when the dollar is weaker.