Question

The graphs above show the exchange rates between the US dollar and two other currencies in 2008. During the months shown, the number of Mexican pesos (MXN) in relation to one dollar rose from 10.2 to 13.1. The number of British pounds (£) in relation to one dollar also rose from .51 to .65.
Based on the graphs, did the value of the US dollar increase or decrease during these months?
i have to write a paragraph

Answer 1

During these five months, the US dollar’s exchange value increased.

• In the first month, July, if a person had one US dollar, they would be able to trade it for 10.2 pesos or .51 pounds.
• By November, this amount grew to 13.1 pesos or .65 pounds.

Therefore, the US dollar grew more valuable during these months.

What happens to demand if the exchange rate increases?

Generally, an appreciation in the exchange rate will tend to reduce aggregate demand (assuming demand is relatively elastic) Because exports will fall and imports increase.

When an exchange rate changes, the value of one currency will go up while the value of the other currency will go down. When the value of a currency increases, it is said to have appreciated. On the other hand, when the value of a currency decreases, it is said to have depreciated.

Therefore, the US dollar grew more valuable during these months.

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