Relationship Between The Internal Value Of Money And The External Value Of Money
Economics notes
Relationship Between The Internal Value Of Money And The External Value Of Money
➡️ The internal value of money is the purchasing power of money within an economy, which is determined by the supply and demand of goods and services.
➡️ The external value of money is the exchange rate of a currency in relation to other currencies, which is determined by the supply and demand of the currency in the foreign exchange market.
➡️ The relationship between the internal and external value of money is that changes in the internal value of money can affect the external value of money, as changes in the purchasing power of a currency can lead to changes in its exchange rate.
What is the difference between internal value and external value of money?
Internal value of money refers to the purchasing power of money within a country's economy, while external value of money refers to the exchange rate of a country's currency in relation to other currencies.
How does the internal value of money affect the external value of money?
If a country's internal value of money is high, meaning that the purchasing power of its currency is strong, then the external value of its currency will also be strong. This is because other countries will want to buy the country's goods and services, which will increase demand for its currency and drive up its exchange rate.
What factors can influence the relationship between the internal value and external value of money?
Factors that can influence this relationship include inflation rates, interest rates, government policies, and global economic conditions. For example, if a country has high inflation rates, its internal value of money may decrease, which can lead to a decrease in the external value of its currency. Similarly, if a country's interest rates are high, it may attract foreign investment, which can increase demand for its currency and drive up its exchange rate.