Uruguay's inflation rate reached $$$8.4 \%$$$ in July 2018. The central bank considered increasing the interest rate to reduce the inflation rate. An increase in interest rates might influence total demand in an economy and lead to an appreciation of its currency. This might influence Uruguay's exports, especially soybean exports. The total revenue of Uruguay's soybean firms might change if there is an appreciation of the Uruguayan peso. Discuss whether or not an appreciation of a country's domestic currency will have negative effects on its economy.

Economics

IGCSE&ALevel

CAIE

Exam No：0455_w21_qp_21 Year：2021 Question No：4(d)

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Knowledge points:

6.3.2 determination of foreign exchange rate in foreign exchange market ：The demand for and supply of a currency in the foreign exchange market and the determination of the equilibrium foreign exchange rate.

6.3.4 consequences of foreign exchange rate fluctuations：The effects of foreign exchange rate fluctuations on export and import prices and spending on imports and exports via the PED.

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Knowledge points:

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