Question

All else equal, an appreciation in the AUD will be more likely to reduce the trade surplus if it leads to an increase in Australian:

a. Tax receipts
b. Private sector investment
c. Government budget surpluses
d. Import demand

Answer 1

An appreciation in the AUD is more likely to reduce the trade surplus if it leads to an increase in Australian import demand because a stronger currency makes imports cheaper and could increase their volume.

Step-by-step explanation:

All else equal, an appreciation in the Australian Dollar (AUD) will more likely reduce the trade surplus if it leads to an increase in Australian import demand. This is because a stronger AUD makes foreign goods cheaper for Australians, potentially increasing the volume of imports. When imports rise, and if exports remain constant, this contributes to a reduction in the trade surplus, as the trade balance is the difference between the value of exports and imports.

An increase in tax receipts, private sector investment, or government budget surpluses do not directly correlate with import levels as much as the appreciation of AUD does in terms of affecting the trade surplus.