In the short-run, any rise in the real exchange rate, EP /P, will cause
A) an upward shift in the aggregate demand function and a reduction in output.
B) an upward shift in the aggregate demand function and an expansion of output.
C) a downward shift in the aggregate demand function and an expansion of output.
D) an downward shift in the aggregate demand function and a reduction in output.
E) an upward shift in the aggregate demand function but leaves output intact.

Question

In the short-run, any rise in the real exchange rate, EP  /P, will cause
A) an upward shift in the aggregate demand function and a reduction in output. 
B) an upward shift in the aggregate demand function and an expansion of output. 
C) a downward shift in the aggregate demand function and an expansion of output. 
D) an downward shift in the aggregate demand function and a reduction in output. 
E) an upward shift in the aggregate demand function but leaves output intact.

Quizplus · Accepted Answer

The Answer of In the short-run, any rise in the real exchange rate, EP  /P, will cause
A) an upward shift in the aggregate demand function and a reduction in output. 
B) an upward shift in the aggregate demand function and an expansion of output. 
C) a downward shift in the aggregate demand function and an expansion of output. 
D) an downward shift in the aggregate demand function and a reduction in output. 
E) an upward shift in the aggregate demand function but leaves output intact.

In the Short-Run, Any Rise in the Real Exchange Rate