An exchange rate shock shifts the aggregate demand curve to the left.

Question

Quizplus · Accepted Answer

An exchange rate shock can shift the aggregate demand curve either to the left or to the right, depending on whether the currency appreciates or depreciates. A depreciation makes domestic goods cheaper for foreigners, potentially increasing exports and shifting aggregate demand to the right. Conversely, an appreciation makes domestic goods more expensive for foreigners, potentially decreasing exports and shifting aggregate demand to the left.

An Exchange Rate Shock Shifts the Aggregate Demand Curve to the Left