|Posted on April 18, 2014 at 10:45 AM|
The international value of currency will appreciate (increase in value) due to the following factors:
1. Interest rates increase - Foreigners will demand more bonds when interest rates rise (because foreigners will make more money). There will be more demand for currency so the currency will appreciate.
2. Tastes and preferences for goods increase - If foreigners demand products produced over here, then there will be more demand for currency and the currency will appreciate.
3. Inflation decreases - If prices are relatively lower here than overseas, then foreigners will demand goods over hear. There will be more demand for currency so the currency will appreciate.
4. Incomes decrease - If this economy is weaker than foreign economies, this economy cannot afford to buy as many foreign goods. This economy will supply fewer units of currency to the foreign exchange market so the currency will appreciate.
AP Macroeconomics Unit 6 International Trade