Economics Exchange Rate Systems Questions
The impact of exchange rate changes on income distribution can vary depending on the specific circumstances and the country's economic structure. In general, a depreciation of the domestic currency can lead to an increase in income inequality. This is because a weaker currency makes imports more expensive, leading to higher prices for imported goods and potentially reducing the purchasing power of lower-income individuals. On the other hand, an appreciation of the domestic currency can benefit lower-income individuals by making imported goods cheaper and potentially reducing inflationary pressures. However, the impact of exchange rate changes on income distribution is complex and can be influenced by various factors such as the structure of the economy, the level of trade openness, and the distributional effects of exchange rate policies implemented by the government.