Question

Assume Countries A, B, and C produce goods that are substitutes of each other and that these countries engage in trade with each other. Assume that Country A's currency floats against Country B's currency, and that Country C's currency is pegged to B's. If A's currency appreciates against B, then A's exports to C should ____, and A's imports from C should ____.a. increase; increaseb. increase; decreasec. decrease; increased. decrease; decrease

Answer 1

The answer is: C) decrease; increase

Step-by-step explanation:

Currency appreciation occurs when the value of one currency increases in relation to another currency. In this case, country A´s currency will gain value against the currency of countries B and C (C´s currency is pegged to B´s currency).

This means that products from country A will be more expensive than products from countries B and C, which should lower country A´s exports and increase its imports.