The net effect of a stronger dollar on real GDP is
A) an increase in real GDP.
B) a decrease in real GDP.
C) an increase in the price level.
D) dependent on whether the increase in aggregate supply is more or less than the decrease in aggregate demand.

Question

Quizplus · Accepted Answer

A stronger dollar makes US exports more expensive and imports cheaper, leading to a decrease in aggregate demand. However, it also makes US goods and services cheaper for foreigners, leading to an increase in aggregate supply. The net effect on real GDP depends on whether the increase in aggregate supply is more or less than the decrease in aggregate demand.

The Net Effect of a Stronger Dollar on Real GDP