Question

A change in the exchange rate for a country's currency alters the prices of

O Exports only
O Only domestic goods and services
O Both exports and imports
O Imports only

Answer 1

An alteration in exchange rates affects both exports and imports by changing the relative prices, which impacts aggregate demand and various economic actors.

Step-by-step explanation:

A change in the exchange rate for a country's currency affects the prices of both exports and imports. When a country's currency appreciates, it becomes stronger relative to other currencies, making imports cheaper and exports more expensive for foreign buyers. Conversely, if a country's currency depreciates, exports become cheaper for foreign buyers and imports become more expensive for domestic consumers.

For instance, a stronger U.S. dollar makes U.S. exports less competitive abroad, as U.S. goods become more expensive for foreign buyers. At the same time, U.S. consumers can buy foreign goods at a lower cost, which encourages imports. This shift can influence the overall aggregate demand within the U.S. economy, as well as impact businesses, investors, and tourists through altered incentives and purchasing power.