Question

Which of the following events would cause a rightward shift of the AD curvea rightward shift of the AD curve​, other things being​ equal? A. Real GDP levels of all the nation’s major trading partners have declined.Real GDP levels of all the nation’s major trading partners have declined. B. The price level has increased this year.The price level has increased this year. C. There has been a decline in the foreign exchange value of the nation’s currency.There has been a decline in the foreign exchange value of the nation’s currency. D. Deflation has occurred during the past year.

Answer 1

Answer: C. There has been a decline in the foreign exchange value of the nation’s currency.

Explanation:

The Demand curve of a country can be written as an equation which is

C+I+G+(X-M)

C is consumption, I is investment, G is government expenditure, X is exports, M is imports and X-M is net exports.

When ever consumption, investment, government expenditure or net exports increase the demand curve shifts to the right and whenever they decrease the demand curve shifts to the left.

In this case when the value of the currency foreign exchange declines, the country reduce its imports because they are now more expensive as your currency's value is declining and the exports will increase because they will now be cheaper to foreign buyers as their currency is now gotten stronger. This decrease in imports and increase in exports will  increase net exports and an increase in net exports will shift the demand curve to the right