A sharp and sustained appreciation in the exchange rate of an open economy is likely to cause a rise in cyclical (demand-deficient) unemployment because
the domestic price of imported raw materials rises, leading to a contraction in short-run aggregate supply and structural unemployment.
domestic firms will immediately substitute domestic labor with cheaper foreign capital, causing a rise in frictional unemployment.
foreign consumers face higher foreign-currency prices for domestic exports, causing a contraction in net exports and aggregate demand.
the central bank will be forced to raise domestic interest rates to prevent capital flight, causing investment to fall.
327 exam-style questions on AQA A Level Economics 2.3 Economic performance, covering 2.3.1 Economic growth and the economic cycle, 2.3.2 Employment and unemployment, 2.3.3 Inflation and deflation, and 2.3.4 Possible conflicts between macroeconomic policy objectives. Each one has a worked solution and a mark scheme showing where the marks go.