If E(euro/AU$) = 0.80 in 2014, and E(euro/AU$) = 0.50 in 2015, which of the following statements would be true? Question 2 Answer a. More Australians tourists will find it cheaper to travel to Europe. b. Visits to Australia become more expensive for Europeans. c. Australians will import more products from Europe. d. Europeans will export fewer products to Australia.
Question
If E(euro/AU) = 0.50 in 2015, which of the following statements would be true? Question 2 Answer
a. More Australians tourists will find it cheaper to travel to Europe.
b. Visits to Australia become more expensive for Europeans.
c. Australians will import more products from Europe.
d. Europeans will export fewer products to Australia.
Solution
The correct answers would be:
a. More Australians tourists will find it cheaper to travel to Europe. This is not true. The decrease in the exchange rate from 0.80 to 0.50 means that the Australian dollar has weakened against the Euro. Therefore, it would be more expensive for Australians to travel to Europe.
b. Visits to Australia become more expensive for Europeans. This is not true. The decrease in the exchange rate means that the Euro has strengthened against the Australian dollar. Therefore, it would be cheaper for Europeans to travel to Australia.
c. Australians will import more products from Europe. This is not true. The decrease in the exchange rate means that European products have become more expensive in Australia. Therefore, Australians would likely import fewer products from Europe.
d. Europeans will export fewer products to Australia. This is true. Since the Australian dollar has weakened, European products have become more expensive in Australia. Therefore, Europeans would likely export fewer products to Australia as the demand for these products decreases due to the higher price.
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