Answer to Question #244324 in Macroeconomics for Peyaa❤️

Question

Discuss in details The factors which can cause a currency to appreciate or depreciate. You may use graph to support your arguments

Answer 1

supply and demand

if a country injects new currency into it's economy, it will increase it's money supply. More money circulation in the economy implies less demand. This depreciates the value of the currency appreciates it's value.

Inflation and deflation.

Inflation refers to increase in price of goods and services. Inflation causes the value of the currency to depreciate. Deflation happens when price of goods and services go down. Deflation causes the value of a currency to appreciate.

Economic outlook.

Slow economic growth in a country makes it's currency value to depreciate. Currency value will depreciate if GDP is declining and also due to high rates of unemployment. Appreciation will occur if indicator like GDP are increasing.

Trade deficits.

Trade deficits occurs when imports are more than exports. An increase in trade deficits makes the currency value to depreciate. When trade deficit decrease the value of the currency appreciates over the value currency of trading partners.