Question

If the dollar appreciates, perhaps because of speculation or government policy, then U.S. net exports:

a. increase which shifts aggregate demand left.
b. decrease which shifts aggregate demand right.
c. decrease which shifts aggregate demand left.
d. increase which shifts aggregate demand right.

Answer 1

When the dollar appreciates, U.S. net exports decrease, leading to a shift of the aggregate demand curve to the left (option c).

Step-by-step explanation:

If the dollar appreciates, which might be due to speculation or government policy, U.S. net exports tend to decrease because American goods become more expensive for foreign buyers. Consequently, when net exports decrease, it is equivalent to a reduction in the external demand for U.S. goods and services, which reduces the aggregate demand in the economy. Therefore, the correct answer is:

c. decrease which shifts aggregate demand left.

The logic behind this is straightforward. When U.S. exports fall, the country is selling less to the rest of the world. At the same time, if the value of the dollar is higher, imports become relatively cheaper, potentially increasing the amount that Americans buy from abroad. This results in a net decrease in the total volume of exports minus imports, which is what we refer to when discussing net exports. This shift in demand due to changing net exports affects the overall economic activity as represented by the aggregate demand curve in macroeconomic models.

Answer 2

The correct answer is option c.

Step-by-step explanation:

If there is an appreciation in the value of the dollar, it implies that the value of the dollar has increased in comparison to foreign currency. This means that foreign consumers will need to pay more for US goods. This will cause a decline in export demand.

Because of the decline in exports, the net exports will fall. This decrease in the net exports will cause the aggregate demand to fall. As a result, the aggregate demand curve will shift to the left.