How would aggregate demand change if foreign incomes increase and the exchange rate value of the dollar increases?
A) Neither change would affect aggregate demand.
B) The increase in income would decrease aggregate demand; the increase in the exchange rate would increase aggregate demand.
C) The increase in income would increase aggregate demand; the increase in the exchange rate would decrease aggregate demand.
D) Both changes would decrease aggregate demand.

Question

Quizplus · Accepted Answer

An increase in foreign incomes would lead to an increase in exports, which would then increase aggregate demand. On the other hand, an increase in the exchange rate value of the dollar would make exports more expensive for foreign countries, leading to a decrease in exports and therefore decreasing aggregate demand. Overall, the increase in foreign incomes would have a greater effect on aggregate demand than the increase in the exchange rate value of the dollar, resulting in a net increase in aggregate demand.

How Would Aggregate Demand Change If Foreign Incomes Increase and the Exchange