Answer to Question #105426 in Macroeconomics for huli

Question

based on the international trade effect, how would an increase in the price level in south africa affect the exchange rate and aggregate demand?

Answer 1

Due to the parity of consumer baskets, we can argue that the national currency will fall in the exchange rate. This is because, theoretically, the same consumer basket cannot have different values in several states. On this basis, an increase in the value of a product is equivalent to giving more of the national currency for a foreign one in exchange. Aggregate demand will go down. People will begin to purchase less goods because they are limited in their purchasing power by money