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A-Level Economics · Currency depreciation diagram question

The pound has fallen from e₁ to e₂. What happens to UK exports?

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The answer

They become cheaper to foreign buyers, so demand for exports rises and export revenue rises — X goes up. Weaker pound → exports cheaper abroad → X rises; imports dearer at home → M falls. X−M improves, AD shifts right, growth rises and unemployment falls. A foreigner now needs fewer dollars to buy a pound's worth of UK goods, so UK exports are cheaper abroad: X rises, M falls, X−M improves, AD shifts right — and be greedy, add the multiplier on top. Don't confuse this with a fall in the domestic price level: that's a different number entirely.

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This is one of 5 questions on the currency depreciation diagram — every corner lettered, every wrong answer diagnosed.

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