A change in the exchange rate affects aggregate demand but not aggregate supply.

Question

Quizplus · Accepted Answer

A change in the exchange rate can affect both aggregate demand and aggregate supply. It influences aggregate demand by making imports more or less expensive, thus affecting domestic consumption and investment. It can affect aggregate supply by altering the cost of imported raw materials and components, which impacts production costs for businesses.

A Change in the Exchange Rate Affects Aggregate Demand but Not