The effect of a change in the value of the dollar 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 dollar in the foreign exchange market due to speculation is shown by shifting the aggregate demand curve.

Question

Quizplus · Accepted Answer

The slope of the aggregate demand curve is influenced by the price level's effect on the value of the dollar in foreign exchange markets, which in turn affects net exports. However, shifts in the aggregate demand curve are caused by factors other than price level changes, such as changes in consumer confidence, fiscal policy, or speculation affecting the value of the dollar, which impact the overall demand for goods and services at all price levels.

The Effect of a Change in the Value of the Dollar