CLEP Principles of Macroeconomics Exam Prep

Answer - C - If the foreign exchange value of a nation’s currency rises, it will increase the AS and decrease the AD.

Key Takeaway: Again, think through all of the questions logically. If the value of the dollar increases, people within the United States need fewer units of currency to pay for goods imported from other countries and will substitute imported goods for domestic goods. Simultaneously, U.S. goods will become more expensive in other countries in their currency. Aggregate demand will increase. Within supply, the imports of resources from other countries becomes cheaper and reduces costs for U.S. producers, increasing aggregate supply.