Suppose that average productivity of Chinese firms increases more rapidly than the average productivity of Australian firms, then:
A)production costs in China fall, quantity demanded for Chinese products rises and the value of yuan falls against the dollar.
B)production costs in China rise, quantity demanded for Chinese products falls and the value of yuan falls against the dollar.
C)production costs in China fall, quantity demanded for Chinese products rises and the value of yuan rises against the dollar.
D)production costs in China rise, quantity demanded for Chinese products rises and the value of yuan rises against the dollar.

Question

Quizplus · Accepted Answer

If the productivity of Chinese firms increases more rapidly than Australian firms, then the production costs in China will fall due to increased efficiency. As a result, the quantity demanded for Chinese products will rise, leading to an increase in demand for yuan. This increased demand for yuan will cause its value to rise against the dollar.

Suppose That Average Productivity of Chinese Firms Increases More Rapidly