A change in which of the following variables will have NO direct effect on the level of domestic demand?

Question

Quizplus · Accepted Answer

The real exchange rate affects international competitiveness and the prices of imports and exports, but it does not directly affect domestic demand. A change in domestic income (A) will generally lead to a change in domestic demand, as people will have more money to spend. Government spending (C) will also affect domestic demand, as it represents a significant component of aggregate demand. Changes in interest rates (D) can affect borrowing and lending, which can influence consumption and investment spending. Therefore, the only option that does not directly affect domestic demand is the real exchange rate (B).

A Change in Which of the Following Variables Will Have