Help- miscellaneous questions on eco (1 Viewer)

[turnerloos]

ah....yes

totally - no fooling you

I'm picking the obviously wrong answer because I want penis

the more you want it, the more you wont get it

 

[dathat]

Why is D.) A country experiencing a boom fixes its exchange rate below the equilibrium rate. correct?
Wouldn't having an undervalued exchange rate boost exports and aggregate demand which is not wanted in a boom period?

 

[malcolm21]

Why is D.) A country experiencing a boom fixes its exchange rate below the equilibrium rate. correct?
Wouldn't having an undervalued exchange rate boost exports and aggregate demand which is not wanted in a boom period?

This is what I was thinking, international competitiveness gets increased and eco growth increases even more?

 

[Ekman]

Why is D.) A country experiencing a boom fixes its exchange rate below the equilibrium rate. correct?
Wouldn't having an undervalued exchange rate boost exports and aggregate demand which is not wanted in a boom period?

The reason why D is correct is because when an economy is experiencing a boom, the investments into the economy and the exports will be increased, and cause an increase in demand for AUD, which causes an appreciation. So in order to counter this, the economy will fix its exchange rate below the equilibrium level, in order to compensate for the appreciation that is going to occur due to the increased investments and exports.