Currency appreciation should reduce net exports and, therefore, decrease aggregate demand.

Question

Quizplus · Accepted Answer

When a currency appreciates, its value relative to other currencies increases. This makes exports more expensive for foreign buyers, reducing the quantity demanded of a country's exports. This leads to a decrease in net exports, which is a component of aggregate demand. Therefore, currency appreciation should reduce net exports and decrease aggregate demand.

Currency Appreciation Should Reduce Net Exports And, Therefore, Decrease Aggregate