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 currency makes imports cheaper, so domestic consumers and firms buy more foreign goods and services.

1) Relevant knowledge points and concepts
- Currency appreciation: domestic currency rises in value relative to foreign currencies.
- Import price effect: appreciation lowers the domestic-currency price of foreign goods, making imports cheaper for domestic buyers.
- Foreign exchange market flows: importers convert domestic currency into foreign currency to pay foreign suppliers; this involves supplying domestic currency (and demanding foreign currency) in the FX market.
- Supply curve slope: an upward-sloping supply curve means a higher “price” (value of the home currency or exchange rate measure) is associated with a greater quantity supplied.

2) Step-by-step reasoning
- When the domestic currency appreciates, a given amount of foreign currency costs fewer units of domestic currency.
- Because foreign goods are now cheaper in domestic-currency terms, the quantity of imports demanded increases.
- To buy more imports, importers sell more domestic currency (supply it into the foreign-exchange market) in exchange for foreign currency.
- The increased willingness to supply domestic currency as its value rises yields a positive relationship between currency value and quantity supplied — i.e., an upward-sloping supply curve.

3) Intermediate steps (conceptual)
- Appreciation → domestic price of imports falls.
- Lower import prices → import quantity demanded rises.
- Higher imports → more domestic currency offered for sale to obtain foreign currency.
- Result → quantity of domestic currency supplied increases as its value rises.

4) Why the correct answer is correct
The mechanism directly links appreciation to cheaper imports and then to greater supply of domestic currency in the FX market. Cheaper imports induce more transactions that require selling domestic currency, which raises the supplied quantity as the currency appreciates.

5) Why other plausible options are incorrect
- “Exports cost less” or “exports cost more”: appreciation makes domestic goods more expensive for foreigners (exports become relatively pricier), so appreciation does not make exports cost less. That effect would reduce export demand, not increase supply of domestic currency.
- “Imports cost more”: this is the opposite of what appreciation does.

6) Conclusion
Therefore, an appreciated currency causes imports to cost less, which explains why the supply curve for currency is upward-sloping. This matches the provided answer: imports to cost less.

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

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