The correct option that explains the reason for the movement of the exchange rate from X1 to X2.
Answer to Problem 22MCQ
Option a is correct.
Explanation of Solution
Explanation for the correct option:
a.
If the exchange rate i.e. Euros per dollar is decreased, then the US dollar value has appreciated as now people can pay fewer dollars for 1 Euro as compared to before. Therefore, option a is correct.
Explanation for incorrect options:
b.
The value of USD is increasing due to which less USD will be paid against 1 Euro. This will also reduce the
c.
Exchange rate is reduced due to either appreciation or
d.
No such reason is shown as per the graph which says that currency becomes more valuable. Therefore, option d is incorrect
e.
In this, the graph is not at all showing any increase or decrease in the aggregate price level. Therefore, option e is incorrect.
Foreign Exchange rate: The rate at which currencies of two different countries are exchanged. In other words, it is the rate at which one currency is exchanged with the other currency.
Chapter 8R Solutions
Krugman's Economics For The Ap® Course
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