If the home currency begins to appreciate against other currencies, this should ____ the current account balance, other things being equal (assume that substitutes are readily available in other countries, and that the prices charged by firms remain the same).

Question

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If the home currency appreciates, it becomes relatively more expensive for other countries to buy the home country's exports. This leads to a decrease in exports and an increase in imports, which ultimately decreases the current account balance.

If the Home Currency Begins to Appreciate Against Other Currencies