the Effect of Exchange Rate Changes (1)

changes in the exchange rate also can alter a country is trade pattern.A shift in tastes and preferences toward foreign goods,which leads to an increase in the domestic price of foreign currency ,will make domestic products cheaper when measured in that foreign currency ,thereby increasing the competitiveness of a country in terms of exports. A decrease in the domestic cost of foreign currency will make foreign goods cheaper and act as a stimulus to imports .In the classical model ,this means that changes in the exchange rate can cause goods not at endpoint of the spectrum to change from exports to imports. A decrease in the pound\euro rate would have the opposite effect ,potentially increasing Spain is exports and reducing its imports.
what determines the equilibrium relative wage ratio in in this two-country,multiple-commodity analysis? In this single-factor approach ,the relative size of the labor force will clearly be critical from the supply perspective .Holding other considerations constant ,the larger the lobar force in one country ,the smaller is its relative wage rate and,other things being equal ,the larger the number of goods it will export .Reciprocal demand will also play a role in determining the ultimate relative wage rate in equilibrium.