The effect of a change in the value of the currency in the foreign exchange market due to a change in the price level helps explain the slope of aggregate demand,but does not shift it.The effects of a change in the value of the currency in the foreign exchange market due to speculation is shown by shifting the aggregate demand curve.

Question

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A change in the value of the currency in the foreign exchange market due to a change in the price level affects the purchasing power of consumers and the competitiveness of exports, which are factors that determine aggregate demand. However, this does not shift the aggregate demand curve. On the other hand, a change in the value of the currency due to speculation can lead to changes in expectations about future price levels and economic conditions, which can shift the aggregate demand curve.

The Effect of a Change in the Value of the Currency