Floating Exchange Rate Appreciation Effects
TITLE
With the help of a diagram, explain what is meant by an appreciation of a floating exchange rate and consider whether a country can only benefit from the appreciation of its currency.
ESSAY
Title: Understanding the Impact of Currency Appreciation in a Floating Exchange Rate System
1. Introduction
💥 Definition of currency appreciation in a floating exchange rate system
💥 Explanation of how exchange rate fluctuates based on supply and demand
2. Diagram of Currency Appreciation
💥 Clear illustration of currency value increasing
💥 Correct labelling of axes and explanation of equilibrium price shift
3. Advantages of Currency Appreciation
💥 Reduction in the prices of imports due to stronger currency
💥 Decrease in inflationary pressures in the economy
4. Disadvantages of Currency Appreciation
💥 Increase in export prices making them less competitive
💥 Potential negative impact on the trade balance
5. Evaluation
💥 Judgement on whether advantages of currency appreciation outweigh disadvantages
💥 Discussion on the potential trade💥offs and considerations for a country
In conclusion, while currency appreciation may bring benefits such as reduced import prices and lower inflation, it may also lead to challenges in export competitiveness and trade balance. Considering the overall impact and specific circumstances of a country is crucial in determining whether currency appreciation is always beneficial.
SUBJECT
ECONOMICS
PAPER
A level and AS level
NOTES
🌟Explanation of Appreciation of a Floating Exchange Rate🌟
1. 🌟AO1 Knowledge and Understanding🌟
💥 Appreciation of an exchange rate in a floating exchange rate system refers to the increase in value of a country's currency based on supply and demand (1).
💥 Diagram illustrating currency appreciation: axes labeled correctly, showing exchange rate or currencies; shift of demand curve rightward or supply curve leftward leading to a new equilibrium price with explanation of shift cause (1).
2. 🌟AO2 Analysis🌟
💥 Advantages of currency appreciation include lower import prices, reducing inflation from cheaper finished goods, raw materials, and parts.
💥 Disadvantages of currency appreciation include higher export prices, reducing competitiveness in the global market.
3. 🌟AO3 Evaluation🌟
💥 Judgment on whether advantages always outweigh disadvantages, considering impacts on economy and trade relationships to make a conclusion (1).