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Naked Economics Chapter 2 Study Guide

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I am amused by the answers provided here. The most amazing thing is no one have any idea about how economics work. I am not an economics expert, but this is the probably first thing you'll be taught in economics after demand/supply curve.

Currency prices works like an index of prosperity in the respective nation. So if you've higher valued currency, you're more developed than lower valued currencies.
However you need to note that the economics works in a way to create a balance. So if value of a currency from developing country such as India (INR) is lower than USD, that means cheaper goods and services are available there and they'll get higher demand, which will ultimately increase the prosperity of India and INR will become strong. A strong …show more content…

rice in USA is 100 USD, in India 100 INR, in Japan 100 Yen, then a USA and India Guy will import rice from Japan since Yen has lowest values among currencies. Demand in Japan will increase for rice, and when supply is constant and demand improves, the prices gets inflated too. Japan will start selling 1 KG. rice in 1000 Yen. You also need to keep in mind that increasing exports means people in Japan will have more money in their pockets, which will increase overall inflation in Japan.

Now since prices of Rice in Japan got too much inflated, the demand of Japanese rice will decrease and people will buy it from India. The same thing will happen and now the balance will be there.

Now back to your question, what will happen if USD and dollar will be at same price. First of all we'll loose all of our exports, since there'd be many other countries to look for. Since it's artificially created balance, without any actual rise in prosperity, development and demand of exports, Indian people will not have any money with them (because there was no sales), prices will inflate for no reasons and can get deflated too, to create the balance.
We'll have no exports since no one will buy from us, we can not import because we won't have money for

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