Choose the combination of two words that best fill the gaps in the following sentence: If the Australian exchange rate falls (Australian dollar depreciates), the price to foreigners of Australian produced goods and services ____ and so the quantity of Australian dollars demanded ____.单项选择题
A
a. rises; decreases
B
b. falls; decreases
C
c. rises; increases
D
d. falls; increases

Question

Choose the combination of two words that best fill the gaps in the following sentence: If the Australian exchange rate falls (Australian dollar depreciates), the price to foreigners of Australian produced goods and services and so the quantity of Australian dollars demanded .单项选择题

A

a. rises; decreases

B

b. falls; decreases

C

c. rises; increases

D

d. falls; increases

BlackTom AI · Accepted Answer

A depreciation of the Australian dollar makes Australian goods cheaper in foreign currency, so...

1. Relevant knowledge points and concepts
- Exchange rate (when expressed as foreign currency per A$) tells how much foreign currency is needed to buy one Australian dollar. A depreciation of the A$ means each A$ buys less foreign currency, so the foreign-currency price of A$‑priced goods falls.
- Law of demand for foreign purchasers: when the foreign-currency price of a good falls, foreigners demand more of that good.
- To buy Australian goods, foreigners must acquire Australian dollars, so higher foreign demand for Australian goods raises the quantity of A$ demanded.

2. Step-by-step reasoning
- Let domestic price of an Australian good be P_AUD (in A$). The price to a foreign buyer in foreign currency = P_AUD × (foreign currency per A$).
- If the A$ depreciates, (foreign currency per A$) decreases. Therefore the foreign-currency price of the same Australian good decreases.
- Lower price for foreigners increases quantity demanded of Australian goods (substitution and income effects).
- To pay for additional Australian goods, foreigners demand more Australian dollars, so quantity demanded of A$ rises.

3. Intermediate calculation example
- Example: P_AUD = 10 A$; initial rate = 0.80 USD/A$ → foreign price = 10 × 0.80 = 8 USD.
- After depreciation: rate = 0.60 USD/A$ → foreign price = 10 × 0.60 = 6 USD (falls).
- Lower price (8 → 6 USD) encourages more purchases, so more USD must be exchanged for A$, increasing quantity of A$ demanded.

4. Why the correct answer is correct
- The depreciation makes Australian goods cheaper for foreigners (price falls), and cheaper foreign prices cause foreigners to buy more Australian goods, which increases their demand for A$.

5. Why the other options are incorrect
- a (rises; decreases): Contradicts the direction of price change on depreciation and contradicts demand response.
- b (falls; decreases): Correct first part but wrong on quantity demanded — a price fall increases quantity demanded, not decreases.
- c (rises; increases): Incorrect first part—depreciation does not raise the foreign-currency price of Australian goods.

6. Conclusion
- Therefore the price to foreigners falls and the quantity of Australian dollars demanded increases. This confirms answer d.

Choose the combination of two words that best fill the gaps in the following sentence: If the Australian exchange rate falls (Australian dollar depreciates), the price to foreigners of Australian produced goods and services and so the quantity of Australian dollars demanded .单项选择题

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