How will the exchange rate (foreign currency per dollar)respond to a decrease in the relative rate of productivity growth in Australia in the long run?
A)Exchange rates will rise.
B)Exchange rates will fall.
C)Exchange rates will be unaffected by changes in the relative rate of productivity growth in Australia, both in the short run and in the long run.
D)The exchange rate will be affected in the short run, but not in the long run.

Question

Quizplus · Accepted Answer

If the relative rate of productivity growth in Australia decreases, it means that the country is becoming less efficient at producing goods and services compared to other countries. This will lead to a decrease in demand for Australian exports, which will lead to a decrease in demand for the Australian dollar. Therefore, in the long run, the exchange rate will fall as the Australian dollar becomes weaker compared to other currencies.

How Will the Exchange Rate (Foreign Currency Per Dollar)respond to a Decrease