Appreciation of a currency will lead to:[Fill in the blank]

Question

BlackTom AI · Accepted Answer

Appreciation of a currency makes domestic goods more expensive for foreigners and foreign goods cheaper for domestic consumers, so exports tend to fall and imports tend to rise.

1. Relevant knowledge points and concepts
- Exchange rate appreciation: the domestic currency gains value relative to foreign currencies (you need fewer units of domestic currency to buy one unit of foreign currency).
- Price competitiveness: when the domestic currency appreciates, the foreign-currency price of domestically produced goods rises, reducing foreign demand; conversely, the domestic-currency price of foreign goods falls, increasing domestic demand for imports.
- Demand response: quantity demanded for exports and imports responds to relative prices.

2. Step-by-step reasoning
- Start with a domestic price for an exported good and convert it into foreign currency to see how a foreign buyer perceives the price.
- Do the same for an imported good, converting the foreign price into domestic currency to see how the domestic buyer perceives the price.
- Compare before and after appreciation.

3. Calculation with intermediate steps (numeric example)
- Domestic good price = 100 D (D = domestic currency). Initial exchange rate: 1 D = 0.5 F (F = foreign currency).
  - Foreign price initially = 100 D × 0.5 F/D = 50 F.
- After appreciation: 1 D = 1 F.
  - Foreign price after = 100 D × 1 F/D = 100 F.
  - Result: foreign buyers face a higher price (50 F → 100 F) so demand for exports falls.
- For imports: foreign good price = 100 F.
  - Initially in domestic currency: 100 F ÷ (0.5 F/D) = 200 D.
  - After appreciation: 100 F ÷ (1 F/D) = 100 D.
  - Result: domestic buyers face a lower price (200 D → 100 D) so imports rise.

4. Why the correct answer is correct
Because appreciation raises the foreign-currency price of domestic exports (reducing exports) and lowers the domestic-currency price of imports (increasing imports).

5. Why other options are incorrect
- Option a (increase in exports and increase in imports): wrong because exports become less competitive when the domestic currency appreciates, so exports do not increase.
- Option c (decrease in exports and a decrease in imports): wrong because imports become cheaper in domestic currency after appreciation, so imports do not decrease.

6. Conclusion
Therefore the correct outcome is a decrease in exports and an increase in imports, confirming option b.

Appreciation of a currency will lead to:[Fill in the blank]单项选择题

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