Thursday

Deflation

From Si

"The question is if we are in a situation which is deflation ,So the value of our money will decrease right? And what about our export it will cheaper or more expensive? "

Value of money falls - does this mean the exchange rate falls?

If the exchange rate falls will exports always be more expensive?

Will imports always be cheaper?

If your economy deflates but so do other economies also deflate, what happens?
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3 comments:

  1. Elvi17 March 2009 at 21:19

    With low exchange rates imports are tend to be more expensive because you will have to pay more your own currency to buy something, however if other countries also depreciate their value, imports wouldn't be more expensive and there might not be increase in exports.
    I can't understand the connection between deflation and exchange rates =(. Could you explain in order to help me answer the last question

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  2. Anonymous24 May 2009 at 19:17

    It seems that deflation leads to a fall in prices and so the exports should become cheaper. I don't understand why should exports be more expensive with falling exchange rates.

    It all depends on the extend to which other economies deflate and on the elasticity of exports and imports (martial-lerner condition)

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  3. Anonymous24 May 2009 at 19:36

    Exports often contain imported materials so exports may well be more expensive.

    BUT...if there is deflation then the deficit may be less (trade) and the exchange rate may rise.

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