An increase in demand for a currency, would, ceteris paribus, cause the currency to

Question

BlackTom AI · Accepted Answer

An increase in demand for a currency raises its market price (its value) relative to other currencies, so the currency will appreciate.

Relevant knowledge points and concepts
- Exchange rates are set by supply and demand in foreign exchange markets. 
- "Appreciation" means the currency becomes more valuable (its price rises relative to other currencies). 
- "Depreciation" means it becomes less valuable. 
- "Surplus" refers to excess supply over demand at a given price. 
- Ceteris paribus means other factors (supply, policies) are held constant.

Step-by-step reasoning
1. Start at an initial equilibrium where demand equals supply for the currency at an equilibrium exchange rate.  
2. Demand increases (shift of the demand curve to the right). At the original exchange rate this creates excess demand (a shortage).  
3. With excess demand, importers, investors, and speculators compete to buy the currency, driving its price up. Market forces move the exchange rate to a new equilibrium where supply equals the higher demand.  
4. The higher exchange rate represents a higher value of the currency: that is, appreciation. Quantity traded also typically increases at the new equilibrium.

Illustrative intermediate steps (conceptual)
- Original equilibrium: D0 = S at price P0.  
- Demand rises to D1 (D1 > D0). At P0 there is excess demand = D1 - S.  
- Price rises from P0 to P1 until D1(P1) = S(P1). P1 > P0, so currency value increased.

Why the correct answer is correct
An increase in demand, holding supply constant, raises the exchange rate (price) of the currency. That increase in price is exactly what "appreciate" means.

Why the other options are incorrect
- a. "be in surplus": a surplus is excess supply, but increased demand creates excess demand (not surplus) at the old price.  
- b. "become less valuable.": that describes depreciation, the opposite outcome.  
- d. "depreciate": depreciation means a fall in value; increased demand causes a rise in value, not a fall.

Conclusion
Therefore, c. appreciate is the correct choice, matching the provided answer.

An increase in demand for a currency, would, ceteris paribus, cause the currency to单项选择题

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