All other things unchanged, a higher exchange rate
A) reduces net exports and aggregate demand.
B) reduces net exports and increases aggregate demand.
C) increases net exports and aggregate demand.
D) increases net exports and reduces aggregate demand.

Question

Quizplus · Accepted Answer

A higher exchange rate means that the currency has appreciated in value compared to other currencies. This makes exports more expensive for foreigners and imports cheaper for domestic consumers. As a result, net exports decrease, which leads to a decrease in aggregate demand.

All Other Things Unchanged, a Higher Exchange Rate