Change in Currency Rate

Change in the sterling currency rate has also great consequences because it depends upon the sterling currency rate to the other countries as well. As end of the day if will have significant effect on the import and export. If the sterling rate is low considering to the other countries then it is obvious that we will import goods from the other countries and on  the other hand if the rate is high then we will hesitate to import goods to the uk because as we will be paying extra money to the other countries .

 As for example if the 1 pound rate is equal to the EU euro is 1.77 at the minute which used to be 1.30 euro as few years back. So that's why we have less import to the uk at the moment and that's why the demand is greater than the supply.

This relationship between currency rate and the demand can be shown as aggregate demand formula

AGGREGATE DEMAND = C + I + G (X - M)

Where c is taken as consumer and I is abbreviated as investment and G is Government expenditure. Where x is as export and m is for the import.