If the dollar appreciates in value relative to foreign currencies:
A) Aggregate demand decreases because C decreases
B) Aggregate demand increases because C increases
C) Aggregate demand decreases because net exports decrease
D) Aggregate demand increases because net exports increase

Question

Quizplus · Accepted Answer

When the dollar appreciates in value, foreign goods become relatively cheaper than American goods. This causes a decrease in exports and an increase in imports, resulting in a decrease in net exports. As a result, aggregate demand (AD) decreases because net exports are a component of AD.

If the Dollar Appreciates in Value Relative to Foreign Currencies