If the depreciation of a country's currency increases its aggregate expenditures by 20, the AD curve will:
A)shift right by more than 20.
B)shift right by less than 20.
C)shift right by exactly 20.
D)not shift at all.

Question

Quizplus · Accepted Answer

When a country's currency depreciates, it makes its goods cheaper and more competitive internationally, increasing exports and decreasing imports. This leads to an increase in aggregate expenditures, which in turn increases aggregate demand more than the initial change in expenditures due to multiplier effects in the economy.

If the Depreciation of a Country's Currency Increases Its Aggregate