An appreciation of the dollar in the foreign exchange market raises United States Real GDP when the _____________ shift of the SRAS curve exceeds the __________ shift of the AD curve.

Question

Quizplus · Accepted Answer

The appreciation of the dollar makes US goods more expensive abroad, reducing exports and shifting the AD curve leftward. However, it also makes imported goods cheaper, reducing the cost of production for US firms and shifting the SRAS curve rightward. If the rightward shift of the SRAS curve exceeds the leftward shift of the AD curve, then the overall effect will be an increase in US Real GDP.

An Appreciation of the Dollar in the Foreign Exchange Market