Help in undestanding the depreciation and aprreciation of exchange rates and how it can be applied to practical situations
I assume you are talking about depreciation/appreciation of currency.
Depreciation: your $ become cheaper and Other coutries' currency become stronger, so the price of your exports will be lower and therefore become more competitive.
Aggregate Demand= Consumption(domestic)+Goverment(expenditure)+Investment+(X(Export)-M(Import))
As your X increases, (X-M) will be greater, so your AD will increase as well and thus improve the national outcome of the country
E.g China tries to keep its currency weak so will maintain it's competitiveness in the international trade market as a huge of Chn's income is depended on export.
Appreciation: Keep your currency strong. Your $ values more.
This is commonly use in small and open economy such as Singapore, and some Euro cty. This is because their economies is too small to cause any impact on international market, therefore it's no point for them to lower their currency. By keeping their currency strong, they are able to purchase more imports at a relatively low price compared to having a weak currency. This will make the variety of goods and sevices greater in that country and its citizens therefore will benefit from it (material standard of living improves)
coutries like Singapore are lack of natural resources, they are highly depended on imports, therefore it is more beneficial for them to keep a strong currency rather than lower it.
Hope this helps.
The question asked was about appreciation and depreciation of currency. To say in simple terms, appreciation means the value of the local currency going up against the foreign currencies in a floating exchange rate system. Depreciation means the value of the local currency going down against the foreign currencies in a floating exchange rate system.
The corresponding terms used in a fixed exchange rate system are revaluation and devaluation.
Since the question requires the answer to be in a manner which gives a basic understanding of exchange rate systems, here I am giving you a link which gives a good explanation in a basic level.
Exchange Rate Systems
Regards and Good Luck in your studies.
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