The Arrows in Figures A–D Represent Possible Movements of the Exchange

question 126

Multiple Choice

The arrows in Figures A–D represent possible movements of the exchange rate (euros per U.S. dollar) and the quantity of U.S. dollars buyers are willing and able to buy. Use these figures to answer the following questions.
-An appreciation of the euro against the U.S.dollar is represented by Figure ________,and a depreciation of the U.S.dollar against the euro is represented by Figure ________.

• A) A; C
• B) A; A
• C) B; D
• D) D; B
• E) A; D

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Definitions:

Subsidy

A financial contribution provided by government to reduce the cost of producing goods or services and support businesses or consumers.

External Costs

Costs of an economic activity that are not borne by the parties directly involved in the transaction but by other individuals or society at large.

Supply Curve

A graph that represents the relationship between the price of a good and the quantity of the good that suppliers are willing to offer for sale.

Socially Optimal

A condition that maximizes societal welfare, often referring to the optimal distribution of resources and goods.