A lower exchange rate has which of the following impacts on a country's net exports and aggregate demand?
A) Both net exports and aggregate demand rise.
B) Net exports rise, and aggregate demand falls.
C) Both net exports and aggregate demand fall.
D) Net exports fall, and aggregate demand rises.

Question

Quizplus · Accepted Answer

A lower exchange rate makes a country's goods cheaper for foreigners, increasing exports and decreasing imports, which boosts net exports. This increase in net exports raises aggregate demand as exports are a component of aggregate demand.

A Lower Exchange Rate Has Which of the Following Impacts