Econia and Macroland are each other's main trading partner. Which statement 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 in value compared to Macroland's currency, it would make Econia's exports cheaper and more attractive to Macroland, increasing the demand for Econia's goods and services. On the other hand, Macroland's exports would become more expensive, decreasing the demand for Macroland's goods and services. This would cause Econia's aggregate demand to rise and Macroland's aggregate demand to fall.

Econia and Macroland Are Each Other's Main Trading Partner