Exchange Rates

Question 1

What are the effects of a change in the exchange rate on imports?

Answer 1

Exchange rate - tells us the price of one currency in terms of another
- depreciation makes imports more expensive as the pound os less valuable
-this means fewer imports are purchased
-appreciation makes imports less expensive as the pound is more valuable
-this means more imports are purchased

Question 2

What happens whe the pound appreciates

Answer 2

Each pound gets MORE foreign currency
Imports become cheaper

Question 3

What happens when the pound depreciates?

Answer 3

Each pound gets LESS foreign currency
Imports become more expensive

Question 4

What does SPICEE stand for

Answer 4

Stronger
Pound
Imports
Cheaper
Exports
Expensive

Question 5

What happens to AD when the pound depreciates ?

Answer 5

AD will increase - as less money is leaving

Question 6

An appreciation of the pound will cause UK aggregate demand to…

Answer 6

Decrease