A decrease in the currency exchange rate would shift the aggregate demand curve rightward,resulting in a higher equilibrium income and price level in the long-run.

Question

Quizplus · Accepted Answer

A decrease in the currency exchange rate makes domestic goods cheaper for foreigners and foreign goods more expensive for domestic consumers, which increases net exports. This shift increases aggregate demand, moving the curve rightward, but the long-run effect on income and price level depends on various factors including monetary policy responses, capacity constraints, and inflation expectations, not a guaranteed higher equilibrium income and price level.

A Decrease in the Currency Exchange Rate Would Shift the Aggregate