Assume that the exchange rate between the dollar and the euro is €0.6 = $1. Suppose the exchange rate changes to €0.50 = $1. Because of the change:
A)Australian exports should increase and Australian imports should increase.
B)Australian exports should decrease and Australian imports should increase.
C)Australian exports should increase and Australian imports should decrease.
D)Australian exports should decrease and Australian imports should decrease.

Question

Quizplus · Accepted Answer

When the exchange rate between the dollar and the euro changes from €0.6 = $1 to €0.50 = $1, it means that the dollar has become stronger and can buy more euros. This will make it cheaper for Australians to buy goods from the eurozone, leading to an increase in imports. On the other hand, it will become more expensive for Eurozone countries to buy goods from Australia, leading to a decrease in exports. Therefore, the best choice is C, Australian exports should increase, and Australian imports should decrease.

Assume That the Exchange Rate Between the Dollar and the Euro