An exchange rate shock shifts the AS curve to the right.

Question

Quizplus · Accepted Answer

An exchange rate shock typically affects the AD (Aggregate Demand) curve, not the AS (Aggregate Supply) curve. A depreciation of the domestic currency can shift the AD curve to the right due to increased demand for exports and reduced demand for imports, while an appreciation could shift it to the left. The AS curve represents the total supply of goods and services in the economy and is influenced by factors like labor, technology, and natural resources.

An Exchange Rate Shock Shifts the AS Curve to the Right