How might a change in the exchange rate affect the domestic economy of the country?
A change in the exchange rate - ceteris paribus - will alter relative prices between trading countries. The answer should (one again) be clear on the price of the currency, the price of exports, quantity of exports and export revenue. Clear links to the domestic economy should be seen, i.e. X and M as components of AD. A good example will then outline how a fall in the exchange rate could increase exports and export revenue, thus increasing AD - while possibly reducing import spending. References should be made to the main macro objectives.