ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Increased exports and appreciation (gain in value) of the Australian Dollar
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Increased exports and depreciation (loss in value) of the Australian dollar
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Increased imports and appreciation (gain in value) of the Australian Dollar
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Increased imports and depreciation (loss in value) of the Australian Dollar
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Detailed explanation-1: -Prices and inflation For example, if goods and services in Australia are expensive relative to the same goods in other economies, over time, demand for Australian goods and services should decrease. This lowers the demand for Australian dollars and causes the Australian dollar to depreciate (as explained above).
Detailed explanation-2: -When the Australian dollar depreciates, or loses value, less foreign currency is required to purchase a given amount of Australian dollars. This makes Australian produced goods and services cheaper than before when compared with goods and services produced overseas.
Detailed explanation-3: -A strengthening U.S. dollar means that it now buys more of the other currency than it did before. A weakening U.S. dollar is the opposite-the U.S. dollar has fallen in value compared to the other currency-resulting in additional U.S dollars being exchanged for the stronger currency.
Detailed explanation-4: -If the dollar depreciates (the exchange rate falls), the relative price of domestic goods and services falls while the relative price of foreign goods and services increases. 1. The change in relative prices will increase U.S. exports and decrease its imports.