Explain how exchange rate changes affect aggregate demand
A currency appreciation will decrease aggregate demand (the aggregate demand curve shifts inward). If currency appreciates, exports become more expensive (and the volume tends to diminish), and imports become cheaper (and the volume tends to increase). Net exports therefore fall, which decreases aggregate demand. Conversely, a currency depreciation has the opposite effect-it increases aggregate demand (the aggregate demand curve shifts outward). [An appropriate diagram to illustrate this answer is Figure 20-2 in the text.]
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The story about the mass slaughter of buffalo in the United States, which allowed the products to be exported during the 1870s, is an example of:
a. the first-mover principle. b. the principle of comparative advantage. c. the tragedy of the commons. d. export subsidies.
In 2008, Cameron began his career with SBC. His starting salary was $32,000. By 2012, his salary increased to $35,000. If the CPI was 100.0 in 2008 and 107.5 in 2012, Cameron's 2012 real income is
A) $35,000. B) $32,558. C) $32,000. D) $37,625. E) $34,400.