6.5

Changes in the Foreign Exchange Market and Net Exports

AP Macroeconomics

The core link: exchange rates → net exports

How appreciation reduces net exports

How depreciation increases net exports

Connection to aggregate demand

Showing the full chain: forex → NX → AD

Dollar appreciation → AD decreases

30313233343536373839404142434445464748495051525354555657585960616263646566676869707172737475767778798081828384858687888990919293949596979899100101102103104105106107108109110111112113114115116117118119120121122123124125126127128129130131132133134135136137138139140141142143144145146147148149150151152153154155156157158159160123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960616263646566676869707172737475767778798081828384858687888990919293949596979899100101102103104105106107108109110111112113114115116117118119120121122123124125126127128129130131132133134135136137138139140141142143144145146147148149150151152153154155156157158159160161162163164165166167168169170171172173174175176177178179180181182183184185186187188189190191192193194195196197198199200Real GDPPrice LevelABAD₁AD₂SRAS

Dollar appreciation → NX↓ → AD shifts left → lower Real GDP and PL

Dollar depreciation → AD increases

30313233343536373839404142434445464748495051525354555657585960616263646566676869707172737475767778798081828384858687888990919293949596979899100101102103104105106107108109110111112113114115116117118119120121122123124125126127128129130131132133134135136137138139140141142143144145146147148149150151152153154155156157158159160123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960616263646566676869707172737475767778798081828384858687888990919293949596979899100101102103104105106107108109110111112113114115116117118119120121122123124125126127128129130131132133134135136137138139140141142143144145146147148149150151152153154155156157158159160161162163164165166167168169170171172173174175176177178179180181182183184185186187188189190191192193194195196197198199200Real GDPPrice LevelABAD₁AD₂SRAS

Dollar depreciation → NX↑ → AD shifts right → higher Real GDP and PL

Summary: exchange rate changes and their effects

Why this matters on the AP Exam

AP Exam Tips

  • •
  • •
  • •
  • •

Common Mistakes

  • •
  • •
  • •
  • •

Unit 6 topics

Unit 6 overview6.1Balance of Payments Accounts6.10Economic Integration and Trade Agreements6.2Exchange Rates6.3The Foreign Exchange Market6.4Effect of Changes in Policies and Economic Conditions on the Foreign Exchange Market6.5Changes in the Foreign Exchange Market and Net Exports6.6Real Interest Rates and International Capital Flows6.7The Effect of Trade Policies6.8Fiscal and Monetary Policies in Open Economies6.9Exchange Rate Regimes
← Previous6.4 Effect of Changes in Policies and Economic Conditions on the Foreign Exchange MarketNext →6.6 Real Interest Rates and International Capital Flows
Practice AP Macroeconomics questions →