Yousof Hamdan
Econ 2
4/15/2017
Econ 2 Paper on factors of economic exchange rates
The four factors that affect economic exchange rates include the substitution effect, the
income effect, the relative price effect and wealth effect. In the paper, I will explain the
importance of each individual effect.
The concept of income effect and substitution effect tells us how the consumption of
goods and services changes when there is a change in income of the consumer or if there is
change in price of the good and services. The income effect represents the change in an
individual’s or economy’s income and shows how that change impacts the quantity demanded of
