How do the fluctuations in the exchange rate influence the domestic price level?
When a currency depreciates the prices of imported inputs will rise. The domestic aggregate supply curve therefore shifts inward, pushing up the prices of domestically made goods and services. By exactly analogous reasoning, an appreciation of the a currency makes imported inputs cheaper and shifts the domestic aggregate supply curve outward, thus pushing domestic prices down.
You might also like to view...
Which of the following would unions be most likely to support?
A) decreasing the legal minimum wage B) restricting immigration C) encouraging imports D) increasing the elasticity of demand for the goods their workers produce
There is a double coincidence of wants when
A) person 1 has what person 2 wants, who in turn wants what person 3 has. B) person 1 has what person 2 wants, and person 2 has money. C) person 1 has what person 2 wants, and person 2 has what person 1 wants. D) person 1 has money, and person 2 has what person 1 wants.