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Chako Chako
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Posts: 2948
8 years ago
Please discuss the volume effect and the value effect in regards to how the current account will move given a change in the real exchange rate.
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International Economics: Theory and Policy

International Economics: Theory and Policy


Edition: 10th
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8 years ago
 The volume effect takes place when consumer spending shifts on export and import quantities, while the value effect results when the domestic output worth of a given amount of foreign imports is changed. It is assumed that the volume effect outweighs the value effect, so that, other things equal, a real depreciation of the currency improves the current account.
Chako Author
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8 years ago
Correct!
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7 years ago
Thanks for the feedback, I'm sure others will appreciate it too
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