Question

From a macroeconomic point of view, increases in ____________ are an addition to aggregate demand, while increases in ___________ are a subtraction from aggregate demand.

Answer 1

There are different factors that causes changes in demands. An increases in exports are an addition to aggregate demand, while increases in imports are a subtraction from aggregate demand.

When there is an increase in a country's exchange rate increases, note that the net exports will reduce and aggregate expenditure will reduce too at all price level. This therefore implies that Aggregate demand will decrease.

An increase in the exchange rate will decrease aggregate demand when demand is known to be relatively elastic. This is due to exports falling and imports increasing.

An effect of an exchange rate shift is to alter the prices of goods and services produced in a country.

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