Suppose the dollar depreciates in the foreign exchange markets.What is the impact on U.S.Real GDP?

Question

Quizplus · Accepted Answer

When the dollar depreciates in foreign exchange markets, it would lead to an increase in the price of imports and an increase in the price of exports, making U.S. goods cheaper for foreign consumers. This would result in an increase in U.S. net exports and, therefore, an increase in Aggregate Demand (AD). This would shift the AD curve to the right. 
However, simultaneously, the increase in import prices would decrease U.S. SRAS, shifting the SRAS curve to the left. 
Thus, the impact on U.S. Real GDP could be an increase (if the shift in AD is greater than the shift in SRAS), a decrease (if the shift in SRAS is greater than the shift in AD), or even remain constant (if the shifts are equal in magnitude). Therefore, option D is the correct answer.

Suppose the Dollar Depreciates in the Foreign Exchange Markets