Suppose the exchange rate falls from $1.20 Canadian per U.S. dollar to $1.10 Canadian per U.S. dollar. U.S. exports will __________, U.S. imports will , and U.S. aggregate demand will__________
A) decrease; increase; decrease
B) increase; increase; increase
C) increase; decrease; increase
D) decrease; increase; increase

Question

Quizplus · Accepted Answer

When the exchange rate falls, it means that the Canadian dollar has become weaker and the U.S. dollar has become stronger. As a result, U.S. exports become cheaper and more attractive to Canadian consumers, leading to an increase in U.S. exports. On the other hand, Canadian goods become more expensive for U.S. consumers, leading to a decrease in U.S. imports. This increase in net exports will lead to an increase in U.S. aggregate demand.

Suppose the Exchange Rate Falls from $1