Equilibrium real GDP rises after the dollar strengthened. From this, we can conclude that
A) the increase in aggregate demand was greater than the decrease in aggregate supply.
B) the decrease in aggregate demand was less than the increase in aggregate supply.
C) the decrease in aggregate demand was more than the increase in aggregate supply.
D) the increase in aggregate demand was less than the decrease in aggregate supply.

Question

Quizplus · Accepted Answer

When the dollar strengthens, it typically leads to a decrease in aggregate demand due to more expensive exports and cheaper imports. However, if equilibrium real GDP rises, it suggests that the increase in aggregate supply (possibly due to cheaper imported inputs) was greater than the decrease in aggregate demand.

Equilibrium Real GDP Rises After the Dollar Strengthened