The exchange rate last year was $1 = 1.1 euros. This year it is $1 = 1.2 euros. We can say that the value of the dollar
A) fell; causing net exports to increase and aggregate demand to rise.
B) fell; causing net exports to decrease and aggregate demand to fall.
C) increased; causing net exports to decrease and aggregate demand to fall.
D) increased; causing net exports to decrease and aggregate demand to rise.

Question

Quizplus · Accepted Answer

When the exchange rate changes from $1 = 1.1 euros to $1 = 1.2 euros, it means that now you get more euros for each dollar, indicating that the value of the dollar has increased. An increase in the value of the dollar makes U.S. goods more expensive for foreigners, leading to a decrease in net exports. This decrease in net exports can lead to a fall in aggregate demand, as exports are a component of aggregate demand.

The Exchange Rate Last Year Was $1 = 1