Homework Answers
Aggregate demand = Consumption + Investment + Government spending + Exports - Imports
If Inflation is lower in Econia, consumers will demand more of the good while higher inflation in Macroland will reduce consumption level and hence aggregate demand.
If Econia's currency depreciates than Econland's currency, consumers from Econland will find cheaper goods from Econia which will raise exports of Econia and reduce imports of Econland. It will raise aggregate demand of both country.
Higher inflation in Econia will reduce aggregate demand there.
Appreciation of Econia currency will raise imports because consumers will find goods cheaper from Econland which reduce aggregate demand.
Option A is correct.
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