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Question
Statistics
Posted 7 months ago
Guatemala and the United States are trading partners. Guatemala's currency is the quetzal and the United States' currency is the dollar.
Which of the following causes the quetzal to appreciate?
Choose 1 answer:
A The demand for the quetzal decreases.
(B) People want to fewer goods from Guatemala.
(c) The supply of the dollar increases.
(D) The supply of the quetzal increases.
(E) The demand for the dollar increases
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Answer from Sia
Posted 7 months ago
Solution by Steps
step 1
To understand currency appreciation, we need to consider the basic economic principle of supply and demand
step 2
The value of a currency appreciates when the demand for it increases relative to its supply, or when the supply of the other currency increases relative to its demand
step 3
Analyzing the answer choices given, we need to identify which scenario would lead to an increase in demand for the quetzal or an increase in the supply of the dollar without a corresponding increase in demand
step 4
Choice A (The demand for the quetzal decreases) would lead to depreciation, not appreciation
step 5
Choice B (People want to buy fewer goods from Guatemala) would also lead to a decrease in demand for the quetzal, causing depreciation
step 6
Choice C (The supply of the dollar increases) suggests that more dollars are available, which could lead to the quetzal appreciating if the demand for quetzals remains unchanged or increases
step 7
Choice D (The supply of the quetzal increases) would likely lead to depreciation of the quetzal if demand does not increase proportionally
step 8
Choice E (The demand for the dollar increases) would likely lead to the appreciation of the dollar, not the quetzal
∻Answer∻
The correct answer is the one that describes a scenario where the quetzal would appreciate
C
Key Concept
Currency Appreciation and Supply and Demand
Explanation
The Guatemalan quetzal would appreciate if the demand for it increases relative to its supply, or if the supply of the dollar increases, making the quetzal relatively more valuable.
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