If the value of the dollar plummets in international currency markets,initially this causes foreigners to buy more American goods.Which of the following indicates the appropriate change in the U.S.economy?
A) The economy moves up along the aggregate demand curve
B) The economy moves down along the aggregate demand curve
C) Aggregate demand shifts to the left
D) Aggregate demand shifts to the right

Question

Quizplus · Accepted Answer

When the value of the dollar plummets, American goods become relatively cheaper for foreigners, therefore, they will increase their demand for American goods, which will shift the aggregate demand curve to the right. This shift in the aggregate demand curve will lead to an increase in the real GDP and price level, which means the economy moves along the aggregate demand curve to a higher equilibrium point. Hence, the correct answer is D- aggregate demand shifts to the right.

If the Value of the Dollar Plummets in International Currency