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, so the currency will appreciate.

1) Relevant concepts:
- Exchange rate = the price of one currency in terms of another.  
- Demand for a currency comes from foreigners wanting to buy that currency (to purchase goods, assets, etc.).  
- Appreciation = the currency becomes more valuable (its price rises); depreciation = it becomes less valuable (its price falls).  
- Ceteris paribus means all other factors (supply, policies) are held constant.

2) Step‑by‑step reasoning:
- Let E be the exchange rate (price) expressed as units of foreign currency per unit of the domestic currency, or more simply “how much the domestic currency is worth.”  
- Market equilibrium occurs where quantity demanded (Qd) = quantity supplied (Qs).  
- If demand increases (D shifts right to D'), at the original price E0 there is now excess demand: Qd(E0) > Qs(E0).  
- Excess demand puts upward pressure on the price E: buyers compete, offering more for the currency.  
- The exchange rate rises to a new equilibrium E1 > E0 where Qd(E1) = Qs(E1). A higher E means the domestic currency is worth more relative to other currencies — it has appreciated.

3) Intermediate logic in algebraic terms:
- Equilibrium solves Qd(E) = Qs(E).  
- Increase in demand: Qd'(E) = Qd(E) + Δ, Δ > 0.  
- At E0: Qd'(E0) − Qs(E0) = Δ > 0 → shortage → E adjusts upward to E1 until Qd'(E1) = Qs(E1).

4) Why the chosen answer is correct:
- Appreciation is exactly the outcome of higher demand (with supply constant): the currency’s value rises.

5) Why the other options are incorrect:
- a. “become less valuable” and d. “depreciate” describe the opposite effect.  
- b. “be in surplus” is wrong because increased demand at the original price creates a shortage, not a surplus.

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

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

类似问题

When Malaysian products become more popular, ceteris paribus, we should expect

Foreigners demand Australian dollars

If the central bank of Sri Lanka increases interest rates and the Reserve Bank of Australia decreases interest rates. Ceteris paribus, we should expect

Foreigners demand Australian dollars

For the following statement, choose the combination of two words that accurately fill the two gaps: If the exchange rate changes from ¥110 = $1 to ¥120 = $1, the dollar has _ and the yen has _.

Foreigners demand Australian dollars

Foreigners demand Australian dollars

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单

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

类似问题

When Malaysian products become more popular, ceteris paribus, we should expect

Foreigners demand Australian dollars

If the central bank of Sri Lanka increases interest rates and the Reserve Bank of Australia decreases interest rates. Ceteris paribus, we should expect

Foreigners demand Australian dollars

For the following statement, choose the combination of two words that accurately fill the two gaps: If the exchange rate changes from ¥110 = $1 to ¥120 = $1, the dollar has ___________ and the yen has ___________.

Foreigners demand Australian dollars

Foreigners demand Australian dollars

更多留学生实用工具

希望你的学习变得更简单

For the following statement, choose the combination of two words that accurately fill the two gaps: If the exchange rate changes from ¥110 = $1 to ¥120 = $1, the dollar has _ and the yen has _.