how does having a flexible exchange rate affect a country's gdp as opposed to having a...

how does having a flexible exchange rate affect a country's gdp as opposed to having a fixed exchange rate?

Expert Solution

Flexible exchange rate means the rate which is set according to the demand - supply market forces.if there will be higher demand then it means higher exchange rate.As flexible exchange rate determined according to the demand supply market forces hence if there will be higher production activity then there will be higher supply of goods.hence it affect GDP .

As we know GDP means gross domestic product in a financial year by the country. If there will be increase in foreign exchange rate then it means that country have economic strength.so if we are doing import from this country then we have to pay more .so strong exchange rate can tends to occur low inflation.

Fixed exchange is having fixed rate which is decided by government or central bank.

as we see GDP = consumption + capital investment + government spending + ( export -import)

Hence higher the value of net export higher the gdp.

Net export have begative relationship with the strength of home currency.

If capital machinery is imported from foreign country then exchange loss might be happen.

Inflation and interest rate is also one of the factor for deciding GDP.

Rahul Sunny answered 6 months ago

How does the foreign exchange rate and supply theory affect gdp in relation to trade and...

How does the foreign exchange rate and supply theory affect gdp in relation to trade and government debt?

In the foreign exchange market, how does a change in expected future U.S. exchange rate affect...

In the foreign exchange market, how does a change in expected future U.S. exchange rate affect the demand for dollars? If the Fed wants to close a recessionary gap, should it buy or sell government securities? Explain why? "As the economy moves upward along its aggregate supply curve, the economy also moves upward along its short-run Phillips curve." Is the previous statement correct or incorrect? Briefly explain your answer.

How does an increase in inflation affect the nominal exchange rate How consistent is the Keynesian...

How does an increase in inflation affect the nominal exchange rate How consistent is the Keynesian consumption function with the random walk hypothesis Use Tobin's q theory and the neoclassical theory of investment to explain why investment rises so rapidly once the economy has passed the trough of a business cycle

3. Explicate how the exchange rates, in a flexible exchange rate regime, and the balance of...

3. Explicate how the exchange rates, in a flexible exchange rate regime, and the balance of payments, in a fixed exchange rate world, are affected by deficits and surpluses.

a) Suppose that the future dollar-yen exchange rate increases. How does this affect the IS curve?...

a) Suppose that the future dollar-yen exchange rate increases. How does this affect the IS curve? Explain fully. b) If the Bank of Japan decides to decrease their money supply, how would that affect the Japanese LM curve? Explain fully.

How does the percentage of voters who are renters (as opposed to owners) affect the incentives...

How does the percentage of voters who are renters (as opposed to owners) affect the incentives for politicians to propose rent controls? Does this incentive depend on the likelihood that renters are less likely to vote in local elections than are owners of apartments and houses? Why do you suppose renters are less likely to vote in local elections? Explain.

what is the relationship between a country's rate of population increase, rate of growth in GDP,...

what is the relationship between a country's rate of population increase, rate of growth in GDP, and standard of living? Subject: Macroeconomics

how does the exchange rate and trade deficit or surplus affect a countries economic well- being?...

how does the exchange rate and trade deficit or surplus affect a countries economic well- being? In what situations is the U.S. harmed/ benefited from the various positions of each ( high trade deficit with a weak U.S. dollar trade surplus with a strong U.S. dollar. etc.)

How can effective federal funds rate can affect real GDP? How can real GDP affect effective...

How can effective federal funds rate can affect real GDP? How can real GDP affect effective federal funds rate? if the percentage in real GPD increases will the percentage in effective federal funds rate decrease or increase? Please provide examples.

The exchange rate of a currency is the price paid in one country's currency for the...

The exchange rate of a currency is the price paid in one country's currency for the currency of another country. If a company in the United States sources parts from a company in Europe, dollars will need to be converted to euros to pay for the parts. This need to convert currency introduces uncertainty as to the actual cost of the parts, since the exchange rate at the time the price is quoted may be different from the rate when...

Question