Question

The Korean balance of trade deficit would be if the Korean dollar appreciates against all currencies, holding other things equal (assume that substitutes are readily available in the countries, and that the prices charged by firms remain the same). The Australia balance of trade deficit would be if the Australian dollar depreciates against all currencies, holding other things equal (assume that substitutes are readily available in the countries, and that the prices charged by firms remain the same).

A. unchanged; unchanged
B. larger; smaller
C. smaller; larger

Answer 1

If the Korean dollar appreciates, it would result in a larger balance of trade deficit for Korea. If the Australian dollar depreciates, it would result in a smaller balance of trade deficit for Australia.

Step-by-step explanation:

If the Korean dollar appreciates against all currencies, holding other things equal, it would result in a larger balance of trade deficit for Korea. When a currency appreciates, it becomes more expensive for other countries to purchase goods and services from that country. This decrease in demand for Korean exports would lead to a larger trade deficit.

On the other hand, if the Australian dollar depreciates against all currencies, holding other things equal, it would result in a smaller balance of trade deficit for Australia. When a currency depreciates, it becomes cheaper for other countries to purchase goods and services from that country. This increase in demand for Australian exports would lead to a smaller trade deficit.