Which of the following is consistent with an appreciation of the dollar?
A)Canadian goods become less expensive relative to foreign goods, which makes exports rise and imports fall.
B)Canadian goods become less expensive relative to foreign goods, which makes exports fall and imports rise.
C)Canadian goods become more expensive relative to foreign goods, which makes exports rise and imports fall.
D)Canadian goods become more expensive relative to foreign goods, which makes exports fall and imports rise.

Question

Quizplus · Accepted Answer

An appreciation of the dollar means that the value of the dollar has increased relative to foreign currencies. This makes Canadian goods more expensive when compared to foreign goods. As a result, exports will decrease as foreign consumers will look for cheaper alternative goods from other countries. At the same time, imports will increase as Canadian consumers will shift to cheaper foreign goods. Therefore, the only option that is consistent with an appreciation of the dollar is D, which states that Canadian goods become more expensive relative to foreign goods, leading to a fall in exports and a rise in imports.

Which of the Following Is Consistent with an Appreciation of the Dollar