Well, I really wanna know that how do imports and exports effect nations’s economy and its currency. I’ve been reading some articles regarding third world economy and have educated myself about how a country cuts down its imports and increases its exports to cope up with economic challenges, but how does it work? Thanks in advance.
In: Economics
Been a while since I opened an economics textbook, but the general gist should be correct.
The GDP of a country indicates how healthy the economy is. If the GDP rises, it means that more goods are being produced, which means the economy is better able to meet the needs of the people. A higher GDP is usually better, at least in materialistic terms and assuming no other problems like wealth inequality, high inflation, etc etc.
GDP is measured by adding 4 sources: Private Consumption, Investment, Government, and (Exports minus Imports). An increase in spending by any of these segments will increase GDP. Boosting exports and lowering imports will mean more goods produced in the country, raising GDP.
When companies in these countries buy goods from each other, they have to change their currency. Let’s say it’s Japan (Yen) and Germany (Euro). A German retailer wants to buy Japanese cars. They have to sell Euros to buy Yen.
By this act of selling euros, the supply of euros has gone up. By buying Yen, the demand of Yen has gone up. Since there is now more Euros and less Yen in the market, the exchange rate of Euros/Yen will go up (ie Yen is worth more than before in Euros).
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