All else being equal, if the rate of growth in productivity in Spain is lower than the rate of growth in productivity in Australia, the euro will:
A)decrease in value relative to the Australian dollar.
B)increase in value relative to the Australian dollar.
C)nominally appreciate against the Australian dollar, but its real value relative to the dollar will remain unchanged.
D)nominally depreciate against the Australian dollar, but its real value relative to the dollar will remain unchanged.

Question

Quizplus · Accepted Answer

Lower productivity growth in Spain means that the overall competitiveness of the Spanish economy is reduced, which can lead to a decrease in demand for the Euro compared to the Australian dollar. This decrease in demand can cause a depreciation of the Euro relative to the Australian dollar.

All Else Being Equal, If the Rate of Growth in Productivity