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Holding exports constant, an appreciated currency will make more imports more affordable, potentially boosting demand for imports. If aggregate demand goes down, but inflation goes
Holding exports constant, an appreciated currency will make more imports more affordable, potentially boosting demand for imports. If aggregate demand goes down, but inflation goes up because of this, what would be the likely explanation?
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The appreciated currency leads to an increase in the money supply due to higher capital inflows, shifting the IS curve to the right, resulting in higher prices and greater output.
All of the choices are true.
Domestic producers produce less domestic products due to substitution effects away from domestic goods to imported goods, leading to decreased output and costpush inflation.
The increase in import prices shifts the Aggregate Demand AD curve leftward, reducing output but increasing the price level.
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