Question

If there is an appreciation of the US dollar, which of the following would occur?

.increase in supply

.increase in quantity supplied

.decrease in demand

.decrease in quantity demanded

Answer 1

It shall be noted that, when there is an appreciation of the US dollar, the exports become expensive and imports become cheaper. That is, with an appreciation of the US dollar, the relative price of domestic goods and services increases while the relative price of foreign goods and services falls.

With the relative price of domestic goods and services increases, there is an upward movement along the supply curve.

Also, the net exports decrease, which in turn decreases the domestic aggregate demand of the economy.

Hence, the correct answer is - decrease in demand