Aggregate Demand and Aggregate Supply - End of Chapter Problem A fall in the value of the dollar against other currencies makes U.S. final goods and services cheaper to foreigners, even though the U.S. aggregate price level remains the same. As a result, foreigners demand more U.S. aggregate output. Your study partner says that this represents a movement down the aggregate demand curve because foreigners are demanding more in response to a lower price. You, however, insist that this represents a rightward shift of the aggregate demand curve.

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Aggregate Demand and Aggregate Supply - End of Chapter Problem
A fall in the value of the dollar against other currencies makes U.S. final goods and services cheaper to foreigners, even though
the U.S. aggregate price level remains the same. As a result, foreigners demand more U.S. aggregate output. Your study
partner says that this represents a movement down the aggregate demand curve because foreigners are demanding more in
response to a lower price. You, however, insist that this represents a rightward shift of the aggregate demand curve.
Transcribed Image Text:Aggregate Demand and Aggregate Supply - End of Chapter Problem A fall in the value of the dollar against other currencies makes U.S. final goods and services cheaper to foreigners, even though the U.S. aggregate price level remains the same. As a result, foreigners demand more U.S. aggregate output. Your study partner says that this represents a movement down the aggregate demand curve because foreigners are demanding more in response to a lower price. You, however, insist that this represents a rightward shift of the aggregate demand curve.
Who is right and why?
Neither of you are right. A fall in the value of the dollar will make imports more expensive for U.S. buyers, even
though the price level remains the same. Fewer goods will be demanded from the U.S. economy at a given price level,
so aggregate demand shifts to the left.
You are right. The price level of the United States has stayed the same, but foreign buyers are demanding more goods
from the United States. Since more goods are being demanded at a given price level, aggregate demand has shifted
rightward.
Both of you are right. The aggregate demand curve will shift to the right, and there will be movement down the
aggregate demand curve.
Your partner is right. Since the aggregate quantity of goods demanded increases as a result of a price change, this
development constitutes a movement along the aggregate demand curve.
Neither of you are right. The price level in the United States has not changed, so U.S. consumers face the same
incentives as before. There is no movement along the aggregate demand curve and no shift in the aggregate demand
curve.
Transcribed Image Text:Who is right and why? Neither of you are right. A fall in the value of the dollar will make imports more expensive for U.S. buyers, even though the price level remains the same. Fewer goods will be demanded from the U.S. economy at a given price level, so aggregate demand shifts to the left. You are right. The price level of the United States has stayed the same, but foreign buyers are demanding more goods from the United States. Since more goods are being demanded at a given price level, aggregate demand has shifted rightward. Both of you are right. The aggregate demand curve will shift to the right, and there will be movement down the aggregate demand curve. Your partner is right. Since the aggregate quantity of goods demanded increases as a result of a price change, this development constitutes a movement along the aggregate demand curve. Neither of you are right. The price level in the United States has not changed, so U.S. consumers face the same incentives as before. There is no movement along the aggregate demand curve and no shift in the aggregate demand curve.
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