All other things equal, an appreciation of the domestic currency will cause aggregate demand to increase.

Question

Quizplus · Accepted Answer

An appreciation of the domestic currency will make domestically produced goods more expensive for foreign buyers, leading to a decrease in net exports. This decrease in net exports will offset any potential increase in consumption and investment due to the increased purchasing power of domestic consumers and businesses. Therefore, aggregate demand is not likely to increase.

All Other Things Equal, an Appreciation of the Domestic Currency