Exchange Rates and AD/AS Quiz

What is the impact of a decrease in the exchange rate on a country's aggregate demand?

• No impact

• Unchanged

• Decrease

• Increase

Explain the relationship between exchange rates and net exports in the context of the AD/AS model.

• Exchange rates and net exports have an inverse relationship in the context of the AD/AS model.

• Exchange rates have no impact on net exports in the context of the AD/AS model.

• Exchange rates and net exports have a direct relationship in the context of the AD/AS model.

• Net exports have no impact on exchange rates in the context of the AD/AS model.

How does an increase in the exchange rate affect the price level in the AD/AS model?

• Lower price level

• No effect on price level

• Decrease in price level

• Higher price level

Describe the effect of an increase in the exchange rate on the level of real output in the short run.

• No effect on real output

• Decrease in real output

• Increase in real output

• Decrease in exchange rate

How does a change in exchange rates affect the balance of payments and the current account in the AD/AS model?

• It causes a decrease in the level of investment

• It influences the level of exports and imports, impacting the current account balance.

• It only affects the level of government spending

• It has no impact on the balance of payments or the current account

If the currency gets weaker

• Exports should increase

• Imports should increase

If exports increase

• AD increases

• AD reduces

If imports increase

• AD increases

• AD reduces

An increase in income taxes

• Reduces AD because consumption falls

• Increases AD because consumption rises

A reduction in income taxes

• Reduces AD because consumption falls

• Increases AD because consumption rises