Refer to Political Instability Abroad.What would the change in the exchange rate make happen to U.S.net exports and U.S.aggregate demand?
A) Net exports would rise and so U.S.aggregate demand would fall.
B) Net exports would rise and so U.S.aggregate demand would rise.
C) Net exports would fall and so U.S.aggregate demand would fall.
D) Net exports would fall and so U.S.aggregate demand would rise.

Question

Quizplus · Accepted Answer

Political instability abroad would likely lead to a decrease in the exchange rate for the affected country's currency. This would make imports from the U.S. more expensive and exports to the affected country cheaper, leading to a decrease in U.S. net exports. This decrease in net exports would decrease U.S. aggregate demand, as less goods and services are being sold to foreign countries.