Assume countries A,B,and C produce goods that are substitutes of each other and that these countries engage in trade with each other. Assume that country A's currency floats against country B's currency,and that country C's currency is pegged to B's. If A's currency depreciates against B,then A's exports to C should _______,and A's imports from C should _______.

Question

Assume countries A,B,and C produce goods that are substitutes of each other and that these countries engage in trade with each other.  Assume that country A's currency floats against country B's currency,and that country C's currency is pegged to B's.  If A's currency depreciates against B,then A's exports to C should _______,and A's imports from C should _______.

Quizplus · Accepted Answer

If A's currency depreciates against B, A's goods become cheaper for C, leading to an increase in exports to C. Conversely, imports from C become more expensive for A, leading to a decrease in imports from C.

Assume Countries A,B,and C Produce Goods That Are Substitutes of Each