A currency appreciation
A)reduces aggregate demand and increases aggregate supply.
B)reduces aggregate demand and aggregate supply.
C)increases aggregate demand and reduces aggregate supply.
D)increases aggregate demand and aggregate supply.

Question

Quizplus · Accepted Answer

A currency appreciation makes exports more expensive, reducing their demand and leading to a decrease in aggregate demand. On the other hand, imports become cheaper, increasing their demand and leading to an increase in aggregate supply. Overall, there is a reduction in aggregate demand and an increase in aggregate supply.

A Currency Appreciation