The Exchange Rate Effect of an increase in overall prices in the economy on aggregate demand refers to: The real interest rates increasing due to greater money demand by the public, as a result of which investments (1) declining. The real exchange rate increasing due to higher prices domestically and as a result net exports (NX) declining. The real exchange rate increasing due to higher prices domestically and as a result net exports (NX) increasing. Households consuming less given higher prices and aggregate consumption (C) declining.

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