Answer to Question #193884 in Macroeconomics for Charmaigne

Question

What effect will the depreciation of the rand have on the demand for foreign goods?

Answer 1

The depreciation of a currency has both positive and negative impacts on the economy of the country. The depreciation will make the exports cheaper and makes the imports dearer. With devaluation, the exchange rate will make the exports more competitive by making them cheaper for foreigners. This will boost the demand for exports which will stimulate the aggregate demand. Also, the devaluation will make the imports more expensive which means that with depreciation the foreign good will be more expensive which will reduce the import demand.

Therefore, if there is depreciation of the rand, then this will decrease the demand for foreign goods as they will now be more expensive for domestic consumers.