The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-An appreciation of the Norwegian kroner in relation to the U.S. dollar is most likely to cause:
A)an increase in the U.S. demand for Norwegian goods.
B)an increase in the Norwegian demand for U.S. goods.
C)an increase in the supply of U.S. goods to Norway.
D)a decrease in the supply of Norwegian goods to the United States.
E)no change in the demand or supply of goods for either country.

Question

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2
 
-An appreciation of the Norwegian kroner in relation to the U.S. dollar is most likely to cause:
A)an increase in the U.S. demand for Norwegian goods. 
B)an increase in the Norwegian demand for U.S. goods. 
C)an increase in the supply of U.S. goods to Norway. 
D)a decrease in the supply of Norwegian goods to the United States. 
E)no change in the demand or supply of goods for either country.

Quizplus · Accepted Answer

An appreciation in the Norwegian kroner means that it now takes fewer kroner to purchase one U.S. dollar. This makes Norwegian goods relatively more expensive for U.S. consumers, which would decrease the demand for Norwegian goods in the U.S. However, it makes U.S. goods relatively cheaper for Norwegian consumers, increasing their demand for U.S. goods. Therefore, an appreciation of the Norwegian kroner is most likely to cause an increase in the Norwegian demand for U.S. goods (choice B).

The Figure Given Below Depicts the Foreign Exchange Market for British