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Question
Microeconomics
Posted 5 months ago
The exchange rate of the Guatemalan quetzal to the U.S. dollar is 10 quetzal per dollar.
If the exchange rate changes to 5 quetzal per dollar, what happened to the value of the quetzal and what happens to Guatemala's exports?
Choose 1 answer:
(A) The quetzal appreciated and its exports will increase.
B The quetzal depreciated and its exports will increase.
(c) The quetzal depreciated and its exports are unaffected.
(D) The quetzal appreciated and its exports will increase.
(E) The quetzal appreciated and its exports will decrease.
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Answer from Sia
Posted 5 months ago
Solution
a
Exchange Rate Change: The initial exchange rate is 10 quetzal per dollar, and it changes to 5 quetzal per dollar. This means that fewer quetzals are needed to buy one dollar, indicating that the quetzal has appreciated
b
Currency Appreciation: When a currency appreciates, it becomes stronger relative to other currencies. In this case, the quetzal has appreciated against the U.S. dollar
c
Impact on Exports: When a country's currency appreciates, its goods become more expensive for foreign buyers. This typically leads to a decrease in exports because foreign consumers will find the goods more expensive and may reduce their purchases
Answer
(E) The quetzal appreciated and its exports will decrease.
Key Concept
Currency Appreciation
Explanation
When the quetzal appreciates, it becomes stronger relative to the U.S. dollar, making Guatemalan goods more expensive for foreign buyers, which typically leads to a decrease in exports.
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