How can exchange rate policy stimulate aggregate demand if there is recession?

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During a recession, there is an inefficient use of resources both in terms of labor which can be seen from the fact that unemployment rises and in terms of other resources with factories lying shut down and machinery not being used.

To stimulate aggregate demand, it is essential to bring in more money into the country. The money in the hands of people would allow them to start buying more goods and services and hence boost consumption of the produce of domestic industry. This increases the money available with people more and a cycle out of recession is created.

The exchange rate determines whether a country's goods and services are bought by people in...

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