Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Songland's exports to Europe become more expensive, reducing aggregate demand.
B
Songland's imports from Europe become cheaper, increasing aggregate demand.
C
Songland's central bank will need to intervene to stabilize the dollar.
D
Songland's economy will experience no change due to currency fluctuations.
Understanding the Answer
Let's break down why this is correct
Answer
If the Euro appreciates against the Songland dollar, it means that the Euro becomes more valuable compared to the Songland dollar. This can make imports from Europe more expensive for Songland, as people in Songland will need to spend more of their dollars to buy the same amount of goods priced in Euros. For example, if a shirt costs 50 Euros, and the exchange rate changes so that it now costs 60 Songland dollars instead of 50, Songland consumers might buy fewer shirts from Europe. As a result, businesses in Songland that rely on imported goods may see a decrease in sales, which can slow down the economy. Overall, this appreciation may lead to higher prices for imported goods and can negatively affect the purchasing power of consumers in Songland.
Detailed Explanation
When the Euro gets stronger, it costs more Songland dollars to buy European goods. Other options are incorrect because Some might think that a stronger Euro means cheaper imports for Songland; It's a common belief that the central bank must always step in during currency changes.
Key Concepts
Flexible Exchange Rates
Aggregate Demand
International Trade Patterns
Topic
Flexible Exchange Rates
Difficulty
hard level question
Cognitive Level
understand
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