Homework Help

Explain what happens to aggregate demand if the dollar depreciates relative to foreign...

user profile pic

jackielavern | Student, Undergraduate | eNotes Newbie

Posted June 18, 2012 at 7:18 PM via web

dislike 1 like

Explain what happens to aggregate demand if the dollar depreciates relative to foreign currencies.

1 Answer | Add Yours

user profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted June 18, 2012 at 7:31 PM (Answer #1)

dislike 1 like

All other things being equal, if the dollar depreciates relative to foreign currencies, Americans will buy fewer imports and foreigners will buy more goods and services that are exported from the US.  This is because a weaker dollar makes American goods cheaper for foreigners and foreign goods more expensive for Americans.  If this happens, aggregate demand for American products will increase.  Fewer imports means that more Americans are buying domestic goods while more exports means that more American goods are being sold overseas.  In both cases, aggregate demand for American goods goes up.

Sources:

Join to answer this question

Join a community of thousands of dedicated teachers and students.

Join eNotes