When the domestic currency appreciates,the IS curve shifts:
A) to the left, causing domestic interest rate to rise.
B) to the left, causing domestic interest rate to fall.
C) to the right, causing domestic interest rate to rise.
D) to the right, causing domestic interest rate to fall.

Question

Quizplus · Accepted Answer

When the domestic currency appreciates, exports become more expensive and imports cheaper, reducing net exports. This decrease in net exports reduces aggregate demand, shifting the IS curve to the left and causing the domestic interest rate to fall.

When the Domestic Currency Appreciates,the IS Curve Shifts