Question

Identify the CORRECT statement(s) in the context of an open economy.

• A. When domestic currency appreciates, foreign goods become more expensive to domestic buyers.
• B. When domestic currency appreciates, domestic goods become more expensive to foreign buyers.
• C. When domestic currency depreciates, foreign goods become less expensive to domestic buyers.
• D. When domestic currency depreciates, domestic goods become more expensive to foreign buyers.

Hint:

Remember: Appreciation makes imports cheaper and exports costlier, while depreciation makes imports costlier and exports cheaper.

Answer 1

The Correct Option is B

Step 1: Fix the meaning of the two words.
Appreciation makes the home currency stronger, so foreign money becomes cheaper to buy. Depreciation makes it weaker, so foreign money becomes dearer.

Step 2: Test option A.
With appreciation, home buyers find foreign goods cheaper, not dearer. So A is wrong.

Step 3: Test option B.
With appreciation, foreigners need more of their own money to buy our goods, so our goods look dearer to them. So B is correct.

Step 4: Test options C and D.
With depreciation, foreign goods become dearer for us, not cheaper, so C is wrong. And our goods become cheaper for foreigners, not dearer, so D is wrong.

Step 5: Conclude.
Only statement B is right.
\[ \boxed{(B)} \]