Final answer:
When price levels increase, the currency value depreciates or weakens, resulting in lesser purchasing power and making domestic products more affordable to foreign buyers while making imports more expensive for domestic consumers.
Step-by-step explanation:
When price levels go up, typically due to inflation, the value of the currency tends to decrease, a process known as depreciation.
Inflation leads to a decrease in the currency's purchasing power, meaning that more money is required to buy the same amount of goods or services.
When the exchange rate for a currency falls, so that it trades for less of other currencies, the currency is said to be weakening. Conversely, when a currency's exchange rate rises, exchanging for more of other currencies, this is referred to as appreciation or the currency becoming stronger.
Investors and consumers feel the impact of these fluctuations in different ways. For example, a strengthening U.S. dollar benefits importers and U.S. consumers purchasing foreign goods, as they become relatively cheaper.
On the other hand, a weakening currency makes domestic products cheaper for foreign buyers, potentially benefitting exporters.