If the U.S. dollar appreciates in value relative to foreign currencies, then this will
A) increase aggregate demand and aggregate supply.
B) decrease aggregate demand and aggregate supply.
C) decrease aggregate demand and increase aggregate supply.
D) increase aggregate demand and decrease aggregate supply.

Question

Quizplus · Accepted Answer

When the U.S. dollar appreciates in value relative to foreign currencies, it becomes more expensive for foreign countries to purchase U.S. goods and services. As a result, U.S. exports decrease, which decreases aggregate demand. However, it also becomes cheaper for U.S. consumers and businesses to purchase foreign goods and services, which increases imports and thus increases aggregate supply. Therefore, the correct answer is C – decreasing aggregate demand and increasing aggregate supply.

If the US Dollar Appreciates in Value Relative to Foreign Currencies, Then