Refer to Figure 14.2 for the following questions.
Figure 14.2

-Refer to Figure 14.2. Suppose that interest rates in Australia fall relative to those in the European Union. Assuming all else remains constant, how would this be represented?
A)Supply would decrease, demand would decrease and the economy moves from B to C to D.
B)Supply would increase, demand would decrease and the economy moves from C to B to A.
C)Supply would decrease, demand would increase and the economy moves from A to D to C.
D)Supply would increase, demand would increase and the economy moves from D to A to B.

Question

Refer to Figure 14.2 for the following questions.
Figure 14.2
 
-Refer to Figure 14.2. Suppose that interest rates in Australia fall relative to those in the European Union. Assuming all else remains constant, how would this be represented?
A)Supply would decrease, demand would decrease and the economy moves from B to C to D. 
B)Supply would increase, demand would decrease and the economy moves from C to B to A. 
C)Supply would decrease, demand would increase and the economy moves from A to D to C. 
D)Supply would increase, demand would increase and the economy moves from D to A to B.

Quizplus · Accepted Answer

When interest rates in Australia fall relative to those in the European Union, Australian assets become less attractive to investors, leading to a decrease in demand for the Australian dollar. At the same time, lower interest rates in Australia could encourage Australians to invest more abroad, increasing the supply of Australian dollars as they are exchanged for foreign currencies. This scenario is best represented by an increase in supply and a decrease in demand, moving the economy from point C to B to A.

Refer to Figure 14.2 for the Following Questions