If the Australian dollar depreciates against the US dollar, holding other factors constant, which one of the followings may likely happen?

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BlackTom AI · Accepted Answer

Question restatement: If the Australian dollar depreciates against the US dollar, holding other factors constant, which one of the followings may likely happen?

Option a: US goods cost more in Australia. When the AUD weakens relative to the USD, imports priced in USD become more expensive in AUD terms, so Australian buyers pay more AUD for US goods. This is a typical consequence of a weaker domestic currency against a major trading partner. Therefore, this statement is true.

Option b: All of these. This option asserts that every listed effect occurs. To evaluate this, we need to assess each of the other statements. If some are true and others false, this blanket option would be incorrect.

Option c: US exports are less competitive in Australia. Competitiveness often hinges on price; with the AUD depreciated, US-made goods priced in AUD become more expensive for Australian buyers, reducing their competitiveness in the Australian market. This statement aligns with standard exchange-rate transmission mechanics, so it is true.

Option d: US travellers are finding it less expensive to travel to Australia. Here the intuition may seem mixed. A depreciation of the AUD means that, in USD terms, prices in Australia (airfare, accommodations, services) can rise for US travellers, making travel more expensive rather than less. Unless there are specific pricing practices (e.g., many components priced in USD or discounts not tied to AUD depreciation), the general effect would not be that travel becomes cheaper for US visitors; it would more likely become more expensive in USD terms. Therefore, this statement is typically false.

Putting these assessments together: a is true, c is true, d is (generally) false, so b would only be correct if all three were true. Since d is not true under the usual transmission mechanism, b would not hold under standard reasoning. However, the given answer indicates b is selected, which would imply treating all statements as true in the context of the question, even though the standard interpretation flags d as unlikely. In studying this, keep in mind that exchange-rate effects can be nuanced if prices are quoted in different currencies, regional pricing strategies, or hedging practices.

Summary of each option:
- a: True, because a weaker AUD raises the local currency cost of US goods for Australian buyers.
- b: Depends on whether you accept that all listed effects occur; if any one effect is not supported, this cannot be true.
- c: True, since higher AUD-denominated prices for US goods reduce US export competitiveness in Australia.
- d: Generally False, since depreciation of AUD tends to make travel to Australia more expensive in USD terms for US travellers, not cheaper.

If the Australian dollar depreciates against the US dollar, holding other factors constant, which one of the followings may likely happen?Single choice

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If the Australian dollar depreciates against the US dollar, holding other factors constant, which one of the followings may likely happen?

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