If a country's currency appreciates, what impact will it have on aggregate demand or aggregate supply?
A) Aggregate demand will rise because the currency will buy more abroad.
B) Long-run aggregate supply will rise because investment returns will rise.
C) Short-run aggregate supply will rise due to lower prices on imported inputs.
D) Long-run aggregate supply will fall because imports will rise.

Question

Quizplus · Accepted Answer

If a country's currency appreciates, it becomes stronger against other currencies. This means that imports become cheaper and businesses are able to purchase more raw materials and inputs for their production processes. As a result, short-run aggregate supply will rise due to lower prices on imported inputs.

If a Country's Currency Appreciates, What Impact Will It Have