An appreciating currency would tend to lower the price level and reduce the level of output. Is this statement true or false? Explain your answer.

Question

Quizplus · Accepted Answer

The appreciation of a country's currency would cause exports to fall and imports to rise resulting in a current account deficit. As the current account moves into a deficit, the domestic economy's aggregate demand will decline as exports decline and imports increase. Real GDP would fall and the price level also falls.

An Appreciating Currency Would Tend to Lower the Price Level