Figure 17.3 The Swiss Franc Under a System of Floating Exchange Rates

-Refer to Figure 17.3. If Swiss labor productivity rises, leading to a decrease in Swiss manufacturing costs, then there would be a(n)

Question

Figure 17.3 The Swiss Franc Under a System of Floating Exchange Rates
 
-Refer to Figure 17.3. If Swiss labor productivity rises, leading to a decrease in Swiss manufacturing costs, then there would be a(n)

Quizplus · Accepted Answer

An increase in Swiss labor productivity, leading to decreased manufacturing costs, would make Swiss goods more competitive internationally. This would increase demand for Swiss exports, thereby increasing the demand for francs to pay for these goods. As demand for francs increases, the value of the franc would appreciate relative to other currencies, including the dollar, leading to a depreciation of the dollar.

Figure 173 the Swiss Franc Under a System of Floating Exchange