When the exchange rate appreciates, the aggregate demand curve shifts to the left causing a decrease in the price level.

Name: When the exchange rate appreciates, the aggregate demand curve shifts to the left causing a decrease in the price level.
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Question

Quizplus · Accepted Answer

An appreciation of the exchange rate makes exports more expensive and imports cheaper, reducing net exports, which is a component of aggregate demand, thus shifting the aggregate demand curve to the left and potentially lowering the price level.

When the Exchange Rate Appreciates, the Aggregate Demand Curve Shifts