Two countries trade with each other regularly. Country A has a strong economy and buys large quantities natural resources from country B each year. Country B has a weaker economy, and $1 in country A's currency is worth about $50 in country B's currency.Which development would most likely result in country B's economy growing stronger?A.Country B's exchange rate becomes fixed, while country A's becomes flexible.B.The exchange rate changes to $1 of country A's money for $20 of country B's money.C.Country A's exchange rate becomes fixed, while country B's becomes flexible.D.The exchange rate changes to $1 of country A's money for $75 of country B's money.
Question
Two countries trade with each other regularly. Country A has a strong economy and buys large quantities natural resources from country B each year. Country B has a weaker economy, and 50 in country B's currency.Which development would most likely result in country B's economy growing stronger?A.Country B's exchange rate becomes fixed, while country A's becomes flexible.B.The exchange rate changes to 20 of country B's money.C.Country A's exchange rate becomes fixed, while country B's becomes flexible.D.The exchange rate changes to 75 of country B's money.
Solution
The development that would most likely result in country B's economy growing stronger is B. The exchange rate changes to 20 of country B's money.
Here's why:
A stronger currency means that you can buy more foreign currency for less of your own. In this case, if the exchange rate changes from 50 of country B's money to being worth only $20 of country B's money, it means that country B's currency has become stronger.
This could potentially lead to economic growth for country B. A stronger currency can make imported goods and services less expensive. This could increase the purchasing power of consumers and businesses in country B, potentially stimulating demand and economic activity.
Moreover, if country B is exporting natural resources to country A, a stronger currency could mean they are getting more of country A's money for the same amount of resources. This could increase country B's national income if the volume of trade remains the same or increases.
However, it's important to note that changes in exchange rates can have complex effects on an economy and the impact can also depend on other factors such as the country's economic structure, monetary policy, and global economic conditions.
Similar Questions
Two countries trade with each other regularly. Country A has a strong economy and buys large quantities of natural resources from country B each year. Country B has a weaker economy, and $1 in country A's currency is worth about $50 in country B's currency.Which result would be most likely if the exchange rate suddenly became $1 in country A's money for $75 in country B's money?A.Country B would receive more value for its exported materials.B.Country A would receive more value for its imported materials.C.Country A would be forced to adopt a flexible exchange rate.D.Country B would be forced to adopt a fixed exchange rate.
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