Assume that country Y's currency is the rand. If country X, a trading partner with country Y, experiences a recession, which of the following is true?
A. The demand for the rand will increase as country X produces fewer of its own goods.
B. The currency of country X will depreciate on foreign exchange markets as residents of country Y buy few goods from country X.
C. The domestic price level in country X will increase and their goods will be less attractive to residents of both countries.
D. The supply of country X's currency to buy country Y's currency will decrease, appreciating country X's currency.
E. Country Y's net exports will increase, the real GDP will increase, and the rand will appreciate.
Answer (2)
During a recession in country X, the demand for its currency diminishes, leading to its depreciation. Conversely, country Y may experience an increase in net exports and a potential appreciation of its currency, the rand. Economic activity and trade flows are significantly impacted by the dynamics of currency exchange in this scenario. ;
The most accurate answer is option B: the currency of country X will depreciate on foreign exchange markets as residents of country Y buy fewer goods from country X. This reflects the reduced demand and economic activity during country X's recession. Consequently, country Y may benefit through increased net exports and potential appreciation of its currency, the rand.
;
