An economy experiences a significant depreciation in the external value of its currency, while simultaneously household property values rise. At the same time, the central bank raises the benchmark interest rate to curb inflation.
Assuming other factors remain constant, which of the following best describes the most likely direct impacts on the components of aggregate demand (ADADAD)?
Net exports decrease due to the weaker currency; consumer spending decreases due to the wealth effect; investment decreases due to higher borrowing costs.
Net exports increase due to the weaker currency; consumer spending decreases due to the wealth effect; investment increases due to higher borrowing costs.
Net exports increase due to the weaker currency; consumer spending increases due to the wealth effect; investment decreases due to higher borrowing costs.
Net exports decrease due to the weaker currency; consumer spending increases due to the wealth effect; investment increases due to higher borrowing costs.
222 exam-style questions on AQA A Level Economics 2.2 How the macroeconomy works: the circular flow of income, aggregate demand/aggregate supply analysis and related concepts, covering 2.2.1 The circular flow of income, 2.2.2 Aggregate demand and aggregate supply analysis, 2.2.3 The determinants of aggregate demand, 2.2.4 Aggregate demand and the level of economic activity, 2.2.5 Determinants of short-run aggregate supply, and 2.2.6 Determinants of long-run aggregate supply. Each one has a worked solution and a mark scheme showing where the marks go.