Any event that causes New Zealanders to buy more AUD foreign goods shifts the local foreign...
Any event that causes New Zealanders to buy more AUD foreign goods shifts the local foreign currency _______ curve to the _______ . A. Demand, right B. Demand, far right C. Supply, right D. Supply, left E. Supply, far left
please explain the reasons
Homework Answers
Answer : C. Supply, right
Explanation
When people buy foreign goods, they need foreign currency in exchange for local currency. Buying more foreign goods will increase the demand for foreign currency (AUD), and decree the demand for local currency.
In this case demand for local currency will decrease and supply will increase, that will lead to depreciation of local currency.
With depreciation in currency the demand will decrease and demand curve shift to left, therefore option A and B are incorrect.
Supply curve is upward sloping and supply increases with depreciation in currency, therefore supply curve shifts to right.
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