Going Back to When France and Germany Had Separate Currencies

question 20

Multiple Choice

Going back to when France and Germany had separate currencies, if there was a shift in demand away from French goods and towards German goods, then

• A) there would be an increase in the rate of inflation in France.
• B) there would be an increase in unemployment in Germany.
• C) the foreign exchange value of the French franc would fall, thus making French goods relatively cheaper and so leading to an increase in aggregate demand for France's output that would off-set the initial reduction in aggregate demand.
• D) the foreign exchange value of the French franc would rise, thus making French goods relatively more expensive and so leading to an reduction in aggregate demand for France's output that would worsen the initial reduction in aggregate demand.

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Definitions:

Internal Rate

Often refers to the internal rate of return (IRR), a metric used to estimate the profitability of potential investments.

Net Present Value

A financial metric that calculates the present value of all cash flows associated with a project, considering both inflows and outflows, to assess profitability.

Initial Investment

The amount of money used to start a project, investment, or venture for the first time.

Average Annual

refers to the yearly average of any given set of data, often used in financial contexts to denote the average return, cost, or other financial metrics over a year.