Exchange Rates and Their Impact on Net Exports

As the dollar exchange rate depreciates, goods and services priced in dollars (i.e., US G/S) become cheaper to Europeans, and goods and services priced in euros become more expensive to Americans. Therefore, US exports will increase and US imports will decrease. In addition, we should remember there is an interdependency between the financial account and current account. When one account moves toward deficit (debits increase and credits decrease) the other account moves toward surplus (credits increase and debits decrease). This interdependency is illustrated through the exchange rate adjustment. This video is made for 1st year college students or AP/IB Economics students. It focuses on foundational economic concepts.