Question

Suppose the economy starts at point C. A depreciation of the US dollar will cause the economy to move from C:

(a) To D to C
(b) To D to A
(c) To B to C
(d) To B to A

Answer 1

Without a specific diagram or additional context, it is not possible to accurately determine the correct movement between points C, D, A, and B when the U.S. dollar depreciates.

Step-by-step explanation:

When supposing the economy starts at point C, the impact of a depreciation of the US dollar causes various effects on supply and demand for currencies. Given the information provided, a depreciation of the U.S. dollar is analogous to an increase in the supply of dollars and a decrease in demand for it in foreign exchange markets. This generally leads to a depreciation of the U.S. dollar vis-à-vis other currencies, such as the pound or the euro, as investors divest themselves from the depreciating currency. This mechanism is reflected in the exchange rate between countries, and it is illustrated by undetermined figures referenced as points A, B, C, and D. Without a specific diagram to reference, however, it is not possible to determine which of the provided options (a, b, c, or d) correctly describes the movement between these points. To accurately answer the student's question, we would require the diagram or additional context to understand the relationship between points C, D, A, and B.