Suppose the Chinese yuan increases in its value relative to the U.S. dollar. In the U.S. economy,
A) the price level will increase and real GDP will fall if the increase in aggregate demand is less than the decrease in aggregate supply.
B) the price level will increase and real GDP will fall if the decrease in aggregate demand is more than the increase in aggregate supply.
C) the price level will fall and real GDP will increase if the increase in aggregate supply is greater than the decrease in aggregate demand.
D) the price level will fall and real GDP will decrease if the decrease in aggregate demand is less than the increase in aggregate supply.

Question

Quizplus · Accepted Answer

When the Chinese yuan increases in value relative to the U.S. dollar, U.S. exports become more expensive and imports cheaper, leading to a decrease in aggregate demand. If this decrease is greater than any potential increase in aggregate supply, the price level will rise and real GDP will fall.

Suppose the Chinese Yuan Increases in Its Value Relative to the U.S