An exchange rate shock is associated with:
A) higher inflation.
B) lower real GDP.
C) a depreciating currency.
D) all of the above
E) none of the above

Question

Quizplus · Accepted Answer

An exchange rate shock can lead to higher inflation because it makes imported goods more expensive, leading to higher prices for consumers. It can also lead to lower real GDP because it makes exports more expensive, leading to a decrease in demand for exports and a decline in production. Additionally, an exchange rate shock can cause a depreciating currency, which affects trade and investment in a country's economy. Therefore, all of the above (higher inflation, lower real GDP, and a depreciating currency) are associated with an exchange rate shock.

An Exchange Rate Shock Is Associated With