Question

Suppose that average productivity of Chinese firms increases more rapidly than the average productivity of Australian firms, then:

		production costs in China rise, quantity demanded for Chinese products falls, and the value of yuan rises against the Australian dollar.
		production costs in China rise, quantity demanded for Chinese products rises, and the value of yuan rises against the Australian dollar.
		production costs in China fall, quantity demanded for Chinese products rise, and the value of yuan rises against the Australian dollar.
		production costs in China rise, quantity demanded for Chinese products falls, and the value of yuan falls against the Australian dollar.
		production costs in China fall, quantity demanded for Chinese products rise, and the value of yuan falls against the Australian dollar.

Answer 1

Suppose that average productivity of Chinese firms increases more rapidly than the average productivity of Australian firms, then production costs in China falls, quantity demanded for Chinese products rise, and the value of yuan rises against the Australian dollar.

Since the Chinese workers are more efficient and productive when the average productivity of Chinese workers increase, there would be increased demand for the Chinese products and this will in turn reduce the production costs in China. This increase in the demand of the Chinese products lead to the rise in the value of yuan against the Australian dollar.