If the value of Kina appreciates, PNG will _____ in the short run and in the long run, experience balance of payment _______.

Question

A. decrease import, deficit.
B. Increase import, surplus.
C. increase import, deficit.
D. Decrease import, surplus.
Choose the correct one.

Answer 1

If the value of the Kina appreciates, it becomes more expensive for foreign buyers to purchase PNG's exports, which typically leads to a decrease in exports. Simultaneously, imported goods become cheaper for consumers in PNG, likely increasing imports.

In the short run, as imports increase and exports decrease, PNG might experience a balance of payment deficit.

So, the correct answer is C. increase import, deficit.