When the exchange rate depreciates, the current account moves into deficit causing the aggregate demand curve to shift to the left.

Question

Quizplus · Accepted Answer

When the exchange rate depreciates, it generally makes a country's exports cheaper and imports more expensive, which can lead to an improvement in the current account balance, not a deficit. This can increase aggregate demand (as exports rise and imports fall), potentially shifting the aggregate demand curve to the right, not the left.

When the Exchange Rate Depreciates, the Current Account Moves into Deficit