Economies with relatively high growth rates in labor productivity tend to find their currencies' exchange values appreciating under a floating exchange-rate system.

Question

Quizplus · Accepted Answer

This statement is true. When an economy experiences high growth rates in labor productivity, it is generally seen as a positive sign by international investors, leading to an increased demand for that currency on the foreign exchange market. This increased demand, in turn, leads to an appreciation in the currency's exchange value. Under a floating exchange-rate system, the exchange rate is determined by market forces, meaning that these shifts in demand and supply for a currency can result in significant fluctuations in its value relative to other currencies.

Economies with Relatively High Growth Rates in Labor Productivity Tend