Effects of ER Movements

Question 1

describe the positive effects of depreciation

Answer 1

price of aus exports in foreign currency falls and import price rises, increasing amount of exports and decrease imports - rising agg demand in economy

Question 2

what groups does a depreciation positively effect

Answer 2

aus exporters and domestic import producers

Question 3

describe the2 negative effects of depreciation

Answer 3

• consumers must pay higher for imported goods

- promotes inflation: high priced imports increase CPI as well as expansion of economy and increased income

Question 4

describe the 4 positive effects of appreciation

Answer 4

• reduces price of foreign goods
• aus businesses of import benefit
• travel from aus is cheaper
• reduces inflation rates by rising prices of imports

Question 5

describe the 3 negative effects of appreciation

Answer 5

• harms aus exporters b/c makes them expensive
• domestic manufacturers lose as conumsers buy cheap imports
• decrease TB as net exports falls and decreases agg demand therefore will contract economy