Question

A fall in the value of the dollar against other currencies makes U.S. final goods and services cheaper to foreigners even though the U.S. aggregate price level stays the same. As a result, foreigners demand more American aggregate output. Your study partner says that this represents a movement down the aggregate demand curve because foreigners are demanding more in response to a lower price. You, however, insist that this represents a rightward shift of the aggregate demand curve. Who is right

Answer 1

You are right.

Step-by-step explanation:

Aggregate demand is defined as the sum total of all goods and services that are demanded in a particular country. It is also called effective demand.

When there is a shift in demand, the quantity demanded of a product changes as a result of other factors apart from price.

In this scenario dollar value price falls this results in cheaper American goods and as a result there is increase in demand at all price levels. Demand shifts to the right.

Note the price level in America rains the same and the increased demand is as a result of foreign exchange changes.