If the U.S. dollar appreciates in value relative to foreign currencies, then this will:
A) Increase aggregate demand and aggregate supply
B) Decrease aggregate demand and aggregate supply
C) Decrease aggregate demand and increase aggregate supply
D) Increase aggregate demand and decrease aggregate supply

Question

Quizplus · Accepted Answer

An appreciation of the U.S. dollar makes U.S. goods more expensive and less attractive to foreign buyers, leading to a decrease in exports. As a result, there is a decrease in aggregate demand. However, the appreciation of the dollar makes imports cheaper, leading to an increase in imports and an increase in aggregate supply. Therefore, the correct choice is C: Decrease aggregate demand and increase aggregate supply.

If the US Dollar Appreciates in Value Relative to Foreign Currencies, Then