ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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shift the aggregate demand curve leftward.
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shift the aggregate supply curve leftward.
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decrease Canada’s exports and increase Canada’s imports.
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increase Canada’s exports and decrease Canada’s imports.
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Detailed explanation-1: -The foreign purchases effect suggests that a decrease in Canada’s price level relative to other countries will: shift the aggregate demand curve leftward.
Detailed explanation-2: -foreign trade effects. The substitution effect suggests that a decrease in the Canadian price level relative to other countries will: Shifts the aggregate demand curve rightward.
Detailed explanation-3: -exchange rate effect (sometimes called the foreign purchases effect) when a change in the price level in one country leads to other countries purchasing more of that country’s goods. That makes net exports (and therefore real GDP) increase.
Detailed explanation-4: -The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will: increase U.S. imports and decrease U.S. exports.
Detailed explanation-5: -Currency Exchange Rates Aggregate demand will, therefore, increase. When the value of the dollar increases, foreign goods are cheaper and U.S. goods become more expensive to foreign markets, and aggregate demand decreases.