Figure 36 -8

Which of the graphs in Figure 36-8 represents the effects of a currency appreciation?

Question

Figure 36 -8

Which of the graphs in Figure 36-8 represents the effects of a currency appreciation?

Quizplus · Accepted Answer

Graph 1 in Figure 36-8 represents a currency appreciation because the exchange rate has increased from E1 to E2. This makes the domestic currency stronger, increasing its value relative to the foreign currency. As a result, exports become more expensive and imports become cheaper, leading to a decline in net exports (NX).

Figure 36 -8 Which of the Graphs in Figure 36-8 Represents the Effects