ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A currency appreciation happens within a floating exchange rate system. Currency appreciation is an increase in the external value of one currency in relation to another currency. For example, the pound sterling might appreciate from £1 buys $1.20 to £1 buys $1.30.

Detailed explanation-2: -Effects of Currency Appreciation Export costs rise: If the U.S. dollar appreciates, foreigners will find American goods more expensive because they have to spend more for those goods in USD. That means that with the higher price, the number of U.S. goods being exported will likely drop.

Detailed explanation-3: -An appreciation of a currency generally causes an increase in imports into that country, and a decrease in exports from that country, thereby decreasing Net Exports.

Detailed explanation-4: -If the pound-sterling appreciates against the US dollar, the price of imported US products in England will fall causing the demand for US imports to increase. Exports are a positive addition to the aggregate demand which means that increased exports cause the aggregate demand curve to shift to the right.