Briefly explain how exchange rate is one of the causes of Business Cycle

Answer : Business cycle will affect the the exagnge rate in many ways .

When a domestic economy face recession , AD will fall in an economy, unemployment level will rise and price level will go down.  Thus infaltion will fall. So domestic economy' s currency will appreciate and domestic country will import more from foreign country. So domestic currency value will increase and excahnge rate will decline like we have exchange rate Rs 70 for one dollar , Rs price will down as 70 to 69 so domestic currency value will increase .

In case of expansion in domestic country

When domestic country face expansion, so Aggregate demand will increase in domestic economy infaltion will rise . So value of domestic currency will fall , currency will depreciate so it will have an impact on exchange rate.