If Two Countries, a and B, Have Separate Currencies and There

question 7

Multiple Choice

If two countries, A and B, have separate currencies and there is a shift in consumer preferences away from the goods of country A and towards those of country B, then

• A) there will be an increase in inflation in country A.
• B) the foreign exchange value of country A's currency is likely to rise, thus making country A's goods relatively more expensive and worsening the reduction in aggregate demand in country A.
• C) the foreign exchange value of country A's currency is likely to fall, thus making country A's goods relatively cheaper and offsetting the reduction in aggregate demand in country A.
• D) there will be a fall in aggregate demand in country B.

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Definitions:

Credit Terms

The payment conditions set by a seller for the buyer, including the period allowed for payment and any cash discount for early payment.

Inventory Returns Estimated

An approximation of the value or volume of goods that will be returned from customers back to the inventory.

Sales Refund Payable

A liability account that holds funds reserved for future refunds to customers for returned goods.

Sales Returns

Goods returned by customers to the seller after the sale, which result in a reduction of revenue previously recognized.