The correct option for the exchange rate changes between the Euro and dollar if the aggregate price level falls.
Answer to Problem 3MCQ
Option d is correct.
Explanation of Solution
Explanation for the correct option:
d
The changes in aggregate price level may cause exchange rates between Euro and the dollar to increase, decrease or remain unchanged. Therefore, option d is correct.
Explanation for incorrect options:
a.
The effect of the decrease in aggregate price level may change the exchange rate positively or negatively or it may remain unchanged. Therefore, option a is the incorrect answer.
b.
It may decrease but also increase at the same time. Therefore, option b is incorrect.
c.
It may increase or decrease or remain the same. Therefore, option c is incorrect.
e.
It will be changed if the aggregate price level falls. Therefore, option e is incorrect.
Foreign Exchange rate: The rate at which currencies of two different countries are exchanged. In other words, it is the rate at which one currency is exchanged with the other currency.
Chapter 42 Solutions
Krugman's Economics For The Ap® Course
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