A depreciation of the currency increases AD from AD1 to AD2 promoting economic recovery in real GDP (Y1 to Y2) but causing demand pull inflation PL1 to PL2
Why does a depreciation in the exchange rate increase aggregate demand?
A fall in the value of a currency will make exports cheaper and imports more expensive. This will cause the volume of exports to rise
When exports become more cheaper and imports become more expensive the volume of exports rise
