Assume Indonesia and Australia are major trading partners. If Indonesian incomes rise relative to Australia's, ceteris paribus, we should expect

Question

BlackTom AI · Accepted Answer

Higher Indonesian incomes increase Indonesians' demand for imports, including Australian goods, so they will demand more Australian exports and therefore more Australian dollars (AUD).

1. Relevant knowledge points and concepts
- Income effects on trade: when a country's income rises, its residents tend to buy more goods and services, including imports. 
- Foreign exchange (FX) market: demand for a currency comes from foreigners who need that currency to buy a country’s goods, services or assets. An increase in demand for a country’s exports raises demand for its currency. 
- Exchange rate movement: greater demand for a currency (holding supply constant) leads to appreciation of that currency.

2. Step-by-step reasoning
- Indonesian incomes rise relative to Australia’s (ceteris paribus).
- Indonesians increase consumption, including purchases of Australian goods and services (imports from Australia ↑).
- To pay Australian exporters, Indonesians must exchange Indonesian rupiah for Australian dollars, so demand for AUD increases.
- On the AUD market, higher demand shifts the demand curve right; with supply unchanged, the AUD price in terms of rupiah rises.
- That rise in price is an appreciation of the Australian currency.

3. Intermediate steps (symbolic)
- Income_ID ↑ → Imports_from_AU by ID (M_ID→AU) ↑
- M_ID→AU ↑ → Demand_for_AUD by ID residents ↑
- Demand_AUD curve shifts right → AUD price (in IDR) ↑ → AUD appreciates

4. Why the correct answer is correct
Answer (a) matches this chain: increase in demand for Australian exports → increase in demand for Australian currency → appreciation of the Australian currency.

5. Why other options are incorrect
- (b) wrongly predicts higher demand for Indonesian exports and appreciation of Indonesian currency; rising Indonesian incomes raise imports, not exports. 
- (c) similarly misstates that Indonesian exports rise and that AUD supply rises causing AUD depreciation—opposite of the correct direction. 
- (d) wording “increase in demand for Australian imports” is ambiguous and misframes the perspective; the key is Indonesian demand for Australian exports (Australia’s exports), not Australian demand for imports.

6. Conclusion
Therefore the correct choice is (a): an increase in demand for Australian exports, an increase in demand for Australian currency and an appreciation of the Australian currency.

Assume Indonesia and Australia are major trading partners. If Indonesian incomes rise relative to Australia's, ceteris paribus, we should expect单项选择题

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