Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Stronger currency leads to higher exports and a larger current account surplus.
B
Weaker currency increases import costs, negatively affecting the current account balance.
C
Expansionary fiscal policy can offset the negative impact of currency fluctuations on the current account.
D
Both B and C are correct.
Understanding the Answer
Let's break down why this is correct
Answer
Changes in exchange rates can significantly affect a country's current account balance, which is the difference between what it earns from exports and what it spends on imports. When a country's currency weakens, its goods become cheaper for foreign buyers, potentially increasing exports. Conversely, imports become more expensive for local consumers, often leading to a decrease in import volume. For example, if the U. S.
Detailed Explanation
A weaker currency makes imports more expensive. Other options are incorrect because Many think a stronger currency means more exports; Some believe that only higher import costs hurt the balance.
Key Concepts
exchange rates
fiscal policies
Topic
Current Account Balance Dynamics
Difficulty
medium level question
Cognitive Level
understand
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