If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect
A) aggregate demand to decrease and aggregate supply to increase.
B) both aggregate demand and aggregate supply to decrease.
C) both aggregate demand and aggregate supply to increase.
D) aggregate demand to increase and aggregate supply to decrease.

Question

Quizplus · Accepted Answer

When the dollar appreciates, it means that it becomes stronger relative to other currencies. This makes foreign goods cheaper for Americans (increasing imports) and American goods more expensive for foreigners (decreasing exports). This scenario typically leads to a decrease in aggregate demand because net exports decrease. On the supply side, cheaper imports can reduce production costs for businesses that rely on foreign inputs, potentially increasing aggregate supply.

If the Dollar Price of Foreign Currencies Falls (That Is