If a country's currency appreciates, other factors remaining constant, which outcome is most likely?
Correct answer: B. Exports become dearer and imports become cheaper
- A. Exports become cheaper and imports become dearer
- B. Exports become dearer and imports become cheaper
- C. Both exports and imports become cheaper
- D. Both exports and imports become dearer
Explanation
An appreciation increases the foreign-currency price of the country's exports and reduces the domestic-currency price of imports. This can weaken net exports, although the actual trade response also depends on demand elasticities.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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