Sia
Question
Macroeconomics
Posted 10 months ago
Maxistan and Theopolis are trading partners. The currency of Maxistan is the peso and the currency of Theopolis is the card.
What happens to the value of each currency if Maxistan places a tariff on exports from Theopolis?
Choose 1 answer:
(A) The card depreciates and the peso appreciates.
(B) Both currencies depreciate.
(C) The card is unaffected and the peso appreciates
(D) Both currencies appreciate.
(E) The card depreciates and the peso is unaffected.
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Answer from Sia
Posted 10 months ago
A
Key Concept
Tariff Impact on Currency Values
Explanation
When Maxistan imposes a tariff on exports from Theopolis, it makes Theopolis's goods more expensive in Maxistan, reducing the demand for Theopolis's currency (the card) to pay for those goods. This can lead to a depreciation of the card. Conversely, as Maxistan's goods become relatively cheaper, the demand for the peso may increase, leading to an appreciation of the peso.
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