📚 Learning Guide
Flexible Exchange Rates
easy

In a flexible exchange rate system, when the value of the Euro appreciates against the Songland dollar, it typically makes Songland's exports more _______ in the Eurozone, potentially increasing aggregate demand in Songland.

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

expensive

B

cheaper

C

irrelevant

D

stable

Understanding the Answer

Let's break down why this is correct

Answer

In a flexible exchange rate system, when the Euro appreciates against the Songland dollar, it means that the Euro becomes more valuable compared to the Songland dollar. This makes Songland's exports more expensive for buyers in the Eurozone because they now have to spend more Euros to buy the same amount of goods from Songland. However, if Songland's goods are of high quality or in high demand, buyers in the Eurozone may still choose to purchase them despite the higher price. As a result, this situation can lead to an increase in aggregate demand in Songland, since more sales can stimulate production and possibly create jobs. For example, if Songland exports wine to the Eurozone, an appreciating Euro might lead to higher sales if customers value the quality of Songland's wine enough to pay the higher price.

Detailed Explanation

When the Euro gets stronger, it means you can buy more with it. Other options are incorrect because Some might think that a stronger Euro makes Songland's goods cost more; This answer suggests that the exchange rate doesn't matter.

Key Concepts

Flexible Exchange Rates
International Trade
Currency Appreciation
Topic

Flexible Exchange Rates

Difficulty

easy level question

Cognitive Level

understand

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