The effects of increasing the value of the euro

In general, the assessment is good news for European consumers who shop abroad. And 'bad news for exporters who have lower profit margins. An assessment can help to reduce inflation in the euro zone, but could also lead to slower economic growth.

1. 'S exports more expensive an appreciation of the single currency: the euro is worth compared to other currencies like the dollar. Consequently, EU exports become more expensive and less competitive. Therefore,There will be a falling demand for exports. However, the effect depends on the elasticity of demand. If demand is inelastic, then there will be a small decrease in quantity demanded.

Imports 2. In the European Union will be more convenient. Therefore the demand for imports will increase. Again, the effect depends on the elasticity of demand. If demand is elastic, so there will be a significant increase in the value of imports.

Fall 3. Economic growth with declining exports and an increase in imports is likelya fall in AD. This demand will be relatively inelastic. Therefore, a decrease in the year (or increase at a slower pace), there was a decline in economic growth (or economic growth will increase at a slower rate.) This will also reduce the inflation.

4. Reduced inflationary pressures. In fact:

a. Decline in global demand

b. The reduced price of imported products.

c. greater incentive for exporters to reduce costs and increaseefficiency.

5. Deterioration of the current account. The European Union's current account deficit is expected to increase. This is due to decreased exports and imports increase. However, this depends on the condition of Marshall Lerner. This suggests that the appreciation of the exchange rate will deteriorate if the current account of countries' exports + imports from developing countries in developing> 1 (demand is relatively elastic)

However, the effect of an appreciation of the euro depends on 2things

1. The state of the economy. If the economy is near full capacity, following a slowdown in the growth of EA can help to reduce inflation and growth does not fall.

2. It depends on other factors that influence the environmental assessment. Currently, the rates of interest to the EU are relatively low, but consumer spending in the DP and, therefore, continued to increase despite the appreciation.

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