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

Question

Quizplus · Accepted Answer

When the exchange rate depreciates, the aggregate demand curve may shift to the right due to increased exports and decreased imports, but this typically leads to an increase in the price level, not a decrease, because of higher demand for goods and services.

When the Exchange Rate Depreciates, the Aggregate Demand Curve Shifts