Explain how exchange rate changes affect aggregate demand.
What will be an ideal response?
A currency appreciation will decrease aggregate demand (the aggregate demand curve shifts inward). If currency appreciates, exports become more expensive (and the volume tends to diminish), and imports become cheaper (and the volume tends to increase). Net exports therefore fall, which decreases aggregate demand. Conversely, a currency depreciation has the opposite effect—it increases aggregate demand (the aggregate demand curve shifts outward). (An appropriate diagram to illustrate this answer is Figure 36-2 in the text.)
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If the level of interest rates paid on time deposits rise relative to that paid by money market accounts, ceteris paribus, individual will
A) reduce their real money balances. B) first reduce then increase their real money balances. C) increase their real money balances. D) hold the same amount of money.
Prior to health care reform, young people would pay approximately ____ of the premium it would cost an elderly person
a. 1/6 b. 1/2 c. 2/3 d. 4/5
Which of the following is true about location rents? a. They are illegal in many inner-city locations. b. They are found by taking the shaded area below the transport cost curve. c. They arise from differential costs in transporting food to the marketplace. d. They arise when the MRP is lower than the cost of transporting food to the marketplace
e. They would not exist if all land were of similar quality.
Markets may have difficulty providing the proper quantity of a public good because
a. individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good. b. the good generally has a very large value to consumers relative to its cost of production. c. the good is one that tends to benefit a large number of people. d. the large profit involved in the production of a public good is generally too much for private firms to effectively pay out to shareholders.