Question

What is an overvalued exchange rate? Use a graph to explain.

Answer 1

Innova valued exchange rate is nothing but a country's currency is too high than expected and this means you are getting more amount of foreign currency for 1 unit of home currency and this is depicted in the graph above. This overvalued exchange rate gets to to reduce domestic demand as inputs will become as Import will become cheap and exports become expensive and this can lead to higher unemployment in the home country and tend to reduce economic growth all in all.