Real exchange rate affects exports and imports, International Economics

Assignment Help:

Q. Explain how an increase in the real exchange rate affects exports and imports.

Answer: While the real exchange rate rises domestic products are cheaper relative to Foreign products. Because of this exports enhancing as foreigners demand more domestic exports. The revolutionize in imports is ambiguous for the reason that fewer units of imports are purchased the volume effect however each foreign unit is now more expensive the value effect. Keep in mind that exports and imports are measured in terms of domestic output that is dollar value not volume of units. Though we habitually assume that the volume effect outweighs the value effect thus that imports decrease when the real exchange rate rises.


Related Discussions:- Real exchange rate affects exports and imports

British economy, how is it the economy during the two wars and till 20 th

how is it the economy during the two wars and till 20 th

Differences between absolute ppp and relative ppp, Q. Discuss the d...

Q. Discuss the differences between Absolute PPP and Relative PPP. Answer: Absolute Purchasing Power Parity (PPP) states that the exchange rate between two currencies e

How does fall in real interest rate affect consumption, Q. Consider the eco...

Q. Consider the economy is initially consuming along the intertemporal budget constraint at point A, where no saving occurs. How does a fall in the real interest rate, r, and affe

Explain purchasing power parity, Explain Purchasing Power Parity.   An...

Explain Purchasing Power Parity.   Answer:  PPP ( ) states that the exchange rate between two countries' currencies equals the ratio of the countries' price levels. A decr

Explain integration of international trade, Explain Integration of Internat...

Explain Integration of International Trade and Foreign Investment

International trade for ideological reasons, Q. Albania refused to engage ...

Q. Albania refused to engage in international trade for ideological reasons. To maximize its economic welfare it could choose to produce at which point in the diagram above? Sup

IMF''s Role in European zero-euro debt crisis, What exactly is IMF and why ...

What exactly is IMF and why is it so important in helping Europe? How exactly does it help Europe and what effects does its help have on rest of the world?

Effects of a permanent increase in the u.s. money supply, Q. Explain the ef...

Q. Explain the effects of a permanent increase in the U.S. money supply in the short run and in the long run. Assume that the U.S. real national income is constant. A raise in

ECONOMICS, In the Ricardian analysis, why does each trading partner have an...

In the Ricardian analysis, why does each trading partner have an incentive to produce at an endpoint of its production-possibility frontier? Why are prices of factors of production

Exchange rate between the dollar and the euro, Q. What is the real ex...

Q. What is the real exchange rate between the dollar and the euro equal to? Answer: Let actual dollar/euro exchange rate q$/ENominal exchange rate E$/EPrice of an unchan

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd