Econia and Macroland are each other's main trading partner. Which of the following correctly identifies an event that would cause Econia's aggregate demand to rise and Macroland's aggregate demand to fall?
A) Inflation is higher in Econia than Macroland.
B) Inflation is lower in Econia than Macroland.
C) Econia's currency appreciates in value compared to Macroland's currency.
D) Econia's currency depreciates in value compared to Macroland's currency.

Question

Quizplus · Accepted Answer

If Econia's currency depreciates, its goods become cheaper for Macroland, increasing Econia's exports and aggregate demand. Conversely, Macroland's goods become more expensive for Econia, reducing Macroland's exports and aggregate demand.

Econia and Macroland Are Each Other's Main Trading Partner