Economic Effects of an Appreciation

An appreciation means an increase in the value of a currency. It means a currency is worth more in terms of foreign currency.

e.g. If £1 = €1 An appreciation of Pound could mean £1 =€1.2

Effects of an Appreciation

  1. Exports more expensive, therefore less UK exports will be demanded
  1. Imports are cheaper, therefore more imports will be bought.
  1. A fall in AD, causing lower growth.
  1. Lower inflation because:
    • import prices are cheaper
    • Lower AD and less demand pull inflation
    • More incentives to cut costs

For evaluation see effects of a devaluation

 

Essays and Revision Notes on Exchange Rates

Exchange Rate Essays

 

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