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. falls; increases
B
b. rises; decreases
C
c. falls; decreases
D
d. rises; 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. falls; increases

B

b. rises; decreases

C

c. falls; decreases

D

d. rises; increases

BlackTom AI · Accepted Answer

A depreciation of the Australian dollar means each AUD buys fewer units of foreign currency, so Australian goods become cheaper for foreigners.

1) Relevant knowledge points and concepts
- Exchange rate convention: price to foreigners = price in AUD × (foreign currency per AUD). If the AUD depreciates, the foreign-currency-per-AUD rate falls, so the foreign-currency price of Australian goods falls.
- Law of demand in foreign markets: when a country’s goods become cheaper to foreigners, foreign demand for those goods rises.
- Foreigners must acquire Australian dollars to buy Australian goods and services, so higher foreign demand for goods raises the quantity of AUD demanded in the foreign exchange market.

2) Step-by-step reasoning
- Step 1: AUD depreciates (exchange rate falls).
- Step 2: For a foreign buyer, the price in their currency = Australian price × exchange rate (foreign currency per AUD).
- Step 3: Because the exchange rate (foreign currency per AUD) falls, the foreign-currency price falls.
- Step 4: Lower price to foreigners increases quantity demanded of Australian goods.
- Step 5: To buy those additional goods, foreigners demand more AUD, so the quantity of AUD demanded increases.

3) Intermediate calculation example
- Suppose an Australian good costs 1,000 AUD. Initially 1 AUD = 0.80 USD → cost to foreign = 1,000 × 0.80 = 800 USD. After depreciation 1 AUD = 0.60 USD → cost = 1,000 × 0.60 = 600 USD. The good is cheaper for the foreign buyer, so purchases rise, and foreigners need more AUD to pay.

4) Why the correct answer is correct
- Depreciation makes Australian exports cheaper in foreign currency (price falls), which raises foreign demand for those exports and therefore raises the quantity of AUD demanded.

5) Why other options are incorrect
- b (rises; decreases): contradicts the effect of depreciation—price does not rise and quantity demanded does not decrease.
- c (falls; decreases): price falling should increase, not decrease, demand.
- d (rises; increases): depreciation does not make prices to foreigners rise.

6) Conclusion
- The correct choice is a. falls; increases, which matches the provided answer.

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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