Figure 6-1

-In Figure 6-1 above,an increase in autonomous exports will cause the ________ dollars to ________ and the exchange rate to ________,ceteris paribus.

Question

Figure 6-1
 
-In Figure 6-1 above,an increase in autonomous exports will cause the ________ dollars to ________ and the exchange rate to ________,ceteris paribus.

Quizplus · Accepted Answer

An increase in autonomous exports leads to an increase in the demand for the domestic currency, as foreign buyers need to exchange their currency into the domestic currency to pay for the exports. This shifts the demand curve for the domestic currency to the right (from D to D₂), causing the exchange rate (the price of the domestic currency in terms of foreign currencies) to fall, as more of the domestic currency is demanded at each price level.

Figure 6-1 -In Figure 6-1 Above,an Increase in Autonomous Exports Will Cause