Effects of exchange rate on consumers and producers

Question 1

When exchange rates appreciate what happens to imports and why

Answer 1

Increase demand for imports because cheaper to import

Question 2

What happens to exports and what is the way to remember imports and exports when exchange rates appreciate

Answer 2

exports decrease because more expensive
SPICED
Stronger
Pound
Imports
Cheaper
Exports
Dearer

Question 3

What happens to inflation as a result of appreciation of exchange rate

Answer 3

export prices more expensive so firms lower their costs to stay competitive which reduces cost-push inflation

Question 4

What happens to economic growth as a result of exchange rate appreciating

Answer 4

lower economic due to reduced demand for exports

Question 5

What does appreciation of exchange rate do standard of living

Answer 5

increase standards of living because cheaper imports therefore more disposable income

Question 6

What happens to balance of payment during appreciation

Answer 6

weakens because imports>exports

Question 7

What does the impact of appreciation actually depend on

Answer 7

price elasticity of demand for imports/exports

Question 8

What happens to exports when exchange rate depreciates

Answer 8

cheaper to export so increased demand for exports

Question 9

What happens to imports when exchange rate depreciates

Answer 9

more expensive import so decrease demand
WPECIE
Weak
Pound
Exports
Cheap
Imports
Expensive

Question 10

What happens to inflation when exchange rate depreciates

Answer 10

cost push inflation increases because many firms which import raw materials prices have gone up

Question 11

What happens to balance of payments and economic growth when exchange rate depreciates

Answer 11

economic growth up because higher export demand

BOP is better because exports>imports