In 1983 argonia’s currency, the argon, underwent a reduction in value relative to the world’s strongest currencies. this reduction resulted in a significant increase in argonia’s exports over 1982 levels. in 1987 a similar reduction in the value of the argon led to another increase in argonia’s exports. faced with the need to increase exports yet again, argonia’s finance minister has proposed another reduction in the value of the argon.

which of the following, if true, most strongly supports the prediction that the finance minister’s plan will not result in a significant increase in argonia’s exports next year?

(a) the value of the argon rose sharply last year against the world’s strongest currencies.

(b) in 1988 the argon lost a small amount of its value, and aronian exports rose slightly in 1989.

(c) the value of argonia’s exports was lower last year than it was the year before.

(d) all of argonia’s export products are made by factories that were operating at full capacity last year, and new factories would take years to build.

(e) reductions in the value of the argon have almost always led to significant reductions in the amount of goods and services that argonians purchase from abroad.

The correct answer is  D)

Explanation:

In Argonia, the factories that make export goods are already at full capacity, and cannot produce anymore without investments in capital stock. Lowering the currency value even more would not directly influence whether those investments are made or not (that could even hinder those investments if the factories are dependent on imports for their machinery).

In other words, it does not matter how low the value of Argon goes, Argonia will still not export more products because it simply cannot increase production.

D

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your answer is

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