Which of these help explain why the supply curve for currency is upward-sloping? An appreciated currency causes:

Question

BlackTom AI · Accepted Answer

An appreciated domestic currency makes foreign goods cheaper in terms of domestic money, so "imports to cost less" directly explains why the supply of domestic currency in the foreign-exchange market rises when the currency strengthens.

1) Relevant concepts
- Appreciation: domestic currency buys more foreign currency or foreign goods for the same amount of domestic money.
- Supply of domestic currency in FX market: domestic residents sell (supply) their currency to obtain foreign currency to pay for imports, foreign investments, or foreign assets.
- Law-like relationship: when the effective purchasing power of the domestic currency rises, domestic agents buy more foreign goods/assets, increasing the quantity of domestic currency they supply to the market.

2) Step-by-step reasoning
- Appreciation → foreign goods become cheaper in domestic-currency terms.
- Cheaper imports → domestic consumers and firms increase import purchases (higher quantity demanded of foreign goods).
- To pay foreign exporters, importers convert domestic currency into foreign currency; they do so by selling domestic currency in the FX market.
- Greater import demand therefore raises the quantity of domestic currency supplied to the market.
- This positive relationship between the value (purchasing power) of the domestic currency and the quantity of it supplied explains why the supply curve slopes upward.

3) Intermediate steps (illustrative)
- If one unit of domestic currency previously bought 1 unit of foreign goods and appreciation raises that to 1.2 units, importers get 20% more imports per domestic unit and therefore will convert more domestic currency overall to finance larger import volumes — increasing supply of domestic currency.

4) Why the correct answer is correct
"Imports to cost less" is the causal link that increases sellers of domestic currency (importers), producing the upward-sloping supply curve.

5) Why other options are incorrect
- "Less foreign goods will be purchased" is the opposite of what appreciation causes.  
- "Need to sell less domestic currency to get foreign currency" is a true mechanical effect per unit, but it would imply less supply per unit purchased; it does not explain the net increase in supply driven by higher import volumes and so cannot justify the upward slope.  
- "All of these" is wrong because two of the listed statements are incorrect or misleading.

Conclusion: The correct answer is "imports to cost less," which matches the provided answer.

Which of these help explain why the supply curve for currency is upward-sloping? An appreciated currency causes:Single choice

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