ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Depreciation of currency, shift of AD to left
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Depreciation of currency, shift of AD to the right
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Appreciation of currency, shift of AD to the left
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Appreciation of currency, shift to the right
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Detailed explanation-1: -The aggregate demand will increase. The dollar has depreciated against foreign currencies this indicates that the dollar has become a cheaper currency as compared to other currencies. Foreign countries will buy more from domestic goods as the dollar has depreciated.
Detailed explanation-2: -Depreciation of the currency implies that more rupees are required to buy a dollar, or that a dollar can now buy goods worth more rupees than before. Accordingly. exports are expected to increase, while imports will take a hit.
Detailed explanation-3: -First, depreciation (devaluation) of currency increases the volume of exports and reduces the volume of imports, both of which have a favourable effect on the balance of trade, that is, they will lower the trade deficit or increase the trade surplus.
Detailed explanation-4: -A trade surplus implies there is high demand from overseas for a country’s goods and services, which tends to push their prices up and contribute to a strengthening of the domestic currency.