Figure 15-1

-Refer to Figure 15-1.Ceteris paribus,an increase in the value of the domestic currency relative to foreign currencies would be represented by a movement from
A) AD₁ to AD₂.
B) AD₂ to AD₁.
C) point A to point B.
D) point B to point A.

Question

Figure 15-1
 
-Refer to Figure 15-1.Ceteris paribus,an increase in the value of the domestic currency relative to foreign currencies would be represented by a movement from
A) AD₁ to AD₂. 
B) AD₂ to AD₁. 
C) point A to point B. 
D) point B to point A.

Quizplus · Accepted Answer

An increase in the value of the domestic currency relative to foreign currencies indicates a decrease in the prices of foreign goods relative to domestic goods, making exports more expensive and imports cheaper. This would lead to a decrease in aggregate demand for domestic goods and an increase in aggregate demand for foreign goods. This shift in demand would be represented by a movement from AD₂ to AD₁.

Figure 15-1 -Refer to Figure 15-1.Ceteris Paribus,an Increase in the Value of in the Value