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Hello Ken, please explain me this.
“In exchange rate movements, strengthening currency will make a country’s exports more expensive, but imports will become cheaper. This would tend to reduce the aggregate demand in the economy.”
If currency value is increasing so it should increase economy and aggregate demand. Why it is decreasing economic growth?
Aggregate Demand = C + I + G + (X-M) so X is high as Exports are expensive and M is less as imports are cheaper.
If imports are cheaper, then more consumption will switch from home produced goods to imported ones. M will increase.
Exports will be more expensive for overseas consumers, so will fall.