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What will happen if Singapore dollar appreciates? (assuming demand for export and import goods is price elastic)

This question is part of Exchange rate quiz
Asked by Dracofalcon, Last updated: Mar 28, 2020

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dracofalcon

Dracofalcon

Answered Sep 20, 2018

Price of import goods will become relatively cheaper

Option (a) is incorrect because price of import goods will become relatively cheaper. Since demand for import goods is price elastic, quantity of import goods bought will increase more than proportionally. Thus, import expenditure will increase instead. Option (b) is correct because less amount of Singapore dollar is needed to buy 1 unit of foreign currency so S$1 can buy more foreign currency and thus price of import goods become relatively cheaper. Option (c) is incorrect because export goods will become relatively more expensive due to a stronger Singapore dollar as more foreign currency is needed to buy S$1 Option (d) is incorrect because when the price of export goods increases, quantity of export goods sold will decrease.
 

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