Other things being equal, a depreciation of the dollar
A) increases aggregate demand in the United States, and may increase aggregate supply by reducing the prices of imported resources.
B) increases aggregate demand in the United States, and may decrease aggregate supply by increasing the prices of imported resources.
C) decreases aggregate demand in the United States, and may increase aggregate supply by reducing the prices of imported resources.
D) decreases aggregate demand in the United States, and may decrease aggregate supply by increasing the prices of imported resources.

Question

Quizplus · Accepted Answer

A depreciation of the dollar makes US exports cheaper and more attractive to foreign buyers, which increases aggregate demand. However, it also makes imported resources more expensive, which can decrease aggregate supply as businesses face higher production costs.

Other Things Being Equal, a Depreciation of the Dollar