If a country's currency depreciates in the foreign exchange markets, the result will be a shift of the aggregate demand curve __________; in addition, if intermediate goods are an important component of the country's imports, the short-run aggregate supply curve __________.
A) to the left; also will shift to the left
B) to the left; will shift to the right
C) to the right; will shift to the left
D) to the right; also will shift to the right

Question

Quizplus · Accepted Answer

When a country's currency depreciates, its exports become cheaper and imports more expensive, leading to an increase in aggregate demand (shift to the right). If intermediate goods are a significant part of imports, their higher cost will increase production costs, shifting the short-run aggregate supply curve to the left.

If a Country's Currency Depreciates in the Foreign Exchange Markets