Ad/As Analysis Of The Impact Of Exchange Rate Changes On The Domestic Economy�S Equilibrium National
Economics notes
Ad/As Analysis Of The Impact Of Exchange Rate Changes On The Domestic Economy�S Equilibrium National
➡️ Demand and supply of a currency is the primary cause of changes in a floating exchange rate. An increase in demand for a currency will cause its value to appreciate, while an increase in supply will cause its value to depreciate.
➡️ Changes in the economic conditions of a country can also affect the demand and supply of its currency, leading to changes in the exchange rate. For example, an increase in economic growth will lead to an increase in demand for the currency, while a decrease in economic growth will lead to a decrease in demand for the currency.
➡️ Political events can also affect the demand and supply of a currency, leading to changes in the exchange rate. For example, a political crisis in a country can lead to a decrease in demand for its currency, while a political resolution can lead to an increase in demand for its currency.
How does a change in exchange rate affect the aggregate demand and aggregate supply of a domestic economy?
A change in exchange rate affects the aggregate demand and aggregate supply of a domestic economy by influencing the prices of imported goods and services. A decrease in the exchange rate will lead to an increase in the prices of imported goods and services, which will lead to an increase in aggregate demand and a decrease in aggregate supply. Conversely, an increase in the exchange rate will lead to a decrease in the prices of imported goods and services, which will lead to a decrease in aggregate demand and an increase in aggregate supply.
What are the implications of a change in exchange rate on the equilibrium national output of a domestic economy?
A change in exchange rate will affect the equilibrium national output of a domestic economy by influencing the prices of imported goods and services. A decrease in the exchange rate will lead to an increase in the prices of imported goods and services, which will lead to an increase in the equilibrium national output. Conversely, an increase in the exchange rate will lead to a decrease in the prices of imported goods and services, which will lead to a decrease in the equilibrium national output.
How does a change in exchange rate affect the balance of payments of a domestic economy?
A change in exchange rate affects the balance of payments of a domestic economy by influencing the prices of imported goods and services. A decrease in the exchange rate will lead to an increase in the prices of imported goods and services, which will lead to an increase in the balance of payments deficit. Conversely, an increase in the exchange rate will lead to a decrease in the prices of imported goods and services, which will lead to a decrease in the balance of payments deficit.