📚 Learning Guide
Flexible Exchange Rates
easy

If the Euro appreciates against the Songland dollar, it will lead to an increase in Songland's aggregate demand because its exports will become cheaper for Eurozone countries.

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Learning Path
Learning Path

Question & Answer
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Choose the Best Answer

A

True

B

False

Understanding the Answer

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Answer

When the Euro appreciates against the Songland dollar, it means that one Euro can buy more Songland dollars than before. This change makes products from Songland cheaper for people in Eurozone countries, encouraging them to buy more of Songland's goods. As a result, Songland's exports will likely increase because foreign buyers find them more affordable. For example, if a Songland-made toy costs 10 Songland dollars, and the Euro is strong, it might only cost 8 Euros for a buyer in Europe. This increase in exports boosts Songland's overall economic activity, leading to higher aggregate demand in the country.

Detailed Explanation

When the Euro gets stronger, it means it takes more Songland dollars to buy Euros. Other options are incorrect because Some might think that a stronger Euro means Songland's goods are cheaper for everyone.

Key Concepts

Flexible Exchange Rates
Aggregate Demand
International Trade
Topic

Flexible Exchange Rates

Difficulty

easy level question

Cognitive Level

understand

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