Question

Which phrase best completes the diagram?

Answer 1

Answer:

C. Exchange rate increases

Explanation:

If exchange rates increase in favor of the reference country, then this country is likely to have a higher value for its exports than its imports, in other words, the terms of trade of that country will have improved. This is why many countries try to control their exchange rates, instead of letting the market determine them: in order to aim for better terms of trade, and better macroeconomic results as a whole.