How can a depreciation in the home currency impact the trade balance?

The trade balance is defined by the difference in value of exports minus imports. Now a depreciation in a the home currency means it that one unit of foreign currency (lets say $) can now purchase more £'s and consequently £1 now is worth less in $.It follows that since $1 can purchase more £'s, exports are more attractive to foreign consumers, thus more exports are purchased. Similarly, since £1 can now purchase less in terms of $'s, imports are less attractive and more expensive to domestic consumers thus less are purchased. It follows that the value of exports have increased, and the value of imports decreased leading to an improvement in the trade balance.

LJ
Answered by Lewis J. Economics tutor

1530 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

An economy has 3 leakages from the circular flow. The marginal propensity to save = 0.17, the marginal propensity to import = 0.23 and the marginal tax rate = 0.4. The government rises spending by £300 million, what is the final change in national income?


Explain the effect on economic growth if a government increases income tax (ceteris paribus).


If mpc = 0.6, what will be the final change in National Income arising from an initial increase in Investment of £200m?


Evaluate the microeconomic impacts of a sugar tax


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2026 by IXL Learning