Assume that the exchange rate between the dollar and the euro is €0.6 = $1. Suppose the exchange rate changes to €0.50 = $1. Because of the change: a. Australian exports should decrease and Australian imports should decrease. b. Australian exports should increase and Australian imports should decrease. c. Australian exports should increase and Australian imports should increase. d. Australian exports should decrease and Australian imports should increase.
Question
Assume that the exchange rate between the dollar and the euro is €0.6 = 1. Because of the change:
a. Australian exports should decrease and Australian imports should decrease.
b. Australian exports should increase and Australian imports should decrease.
c. Australian exports should increase and Australian imports should increase.
d. Australian exports should decrease and Australian imports should increase.
Solution
The question seems to be missing some context. The exchange rate mentioned is between the dollar and the euro, but the options are about Australian exports and imports. The Australian currency is neither the dollar nor the euro, it's the Australian dollar.
However, if we assume that the dollar mentioned is the Australian dollar, then the change in exchange rate means that the Australian dollar has appreciated against the euro. This means that Australian goods are now more expensive for Europeans, so Australian exports should decrease. On the other hand, European goods are now cheaper for Australians, so Australian imports should increase.
So, the answer would be:
d. Australian exports should decrease and Australian imports should increase.
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