Answer to Question #146629 in Economics for Arthur Mpotulo

Question

Explain, with the aid of a graph, the effect on the rand/dollar exchange rate and the equilibrium
quantity of dollars if there is a decrease in imports from the USA to South Africa.
In your answer comment on the effect of this on the current account balance as well as on
domestic prices.

Answer 1

If there is a decrease in imports from the USA to South Africa, then the rand/dollar exchange rate will increase, because South Africa will need less dollars to buy imports.

The current account balance will increase, and domestic prices will decrease.