Chapter 16.2

Question 1

What is the result of currency appreciation for net exports?

Answer 1

Net exports decrease

Question 2

What is the result of currency depreciation for net exports?

Answer 2

Net exports increase

Question 3

How can currency appreciation/depreciation affect inflation?

Answer 3

Can cause both demand-pull and cost-push inflation

Question 4

How can currency appreciation/depreciation affect economic growth?

Answer 4

Depreciation can cause increases or decreases in GDP depending on the size of the rightward shift in aggregate demand relative to the leftward shift of SRAS, while appreciation may reduce real GDP

Question 5

How can currency appreciation/depreciation affect unemployment?

Answer 5

Depreciation can cause increases or decreases in unemployment depending on the size of the rightward shift in aggregate demand relative to the leftward shift of SRAS, while appreciation will likely lead to more unemployment

Question 6

How can currency appreciation/depreciation affect current account balance?

Answer 6

Depreciation may cause an increase in in trade surplus and appreciation may cause an increase in trade deficit

Question 7

How can currency appreciation/depreciation affect foreign debt?

Answer 7

Depreciation causes the value of foreign debt to increase while appreciation causes the value of foreign debt to decrease

Question 8

How can currency appreciation/depreciation affect living standards?

Answer 8

Depreciation may lead to less imports due to higher prices and cause demand-pull inflation. Appreciation leads to lower prices and less demand-pull inflation