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In: Finance

Suppose an economy is currently at full employment and that the nominal exchange rate is fixed....

  1. Suppose an economy is currently at full employment and that the nominal exchange rate is fixed. Then the monetary authorities revalue (appreciate) the domestic currency. What are the effects on economic activity and prices?

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Expert Solution

Economic activiy is very important for every country as it gives the employment. If the vaue of the domestic currecy will appreciate, there will losts of changes. As the currecy value has increased which more items can be purchased from the same prices of currency. The demand side will increase and in this case exporters will gain. As the country are in full employment, the imports will also increase as the demand will increase. The demand of the currency will increase as the value appreciated against others. The prices of the commodity will fall as the vaue of the currency have increased.

jeff jeffy answered 2 years ago
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