The United Kingdom currently has a trade deficit with New Zealand. If the U.K. pound sterling appreciates relative to the New Zealand dollar, which of the following correctly explains the effect on the U.K.'s demand for goods from New Zealand?(1 point)

Question

Responses

The U.K.'s demand will remain the same.
The U.K.'s demand will remain the same.

The U.K.'s demand for New Zealand goods can't be determined.
The U.K.'s demand for New Zealand goods can't be determined.

The U.K.'s demand for New Zealand goods will decline.
The U.K.'s demand for New Zealand goods will decline.

The U.K.'s demand for New Zealand goods will rise.

Answer 1

If the U.K. pound sterling appreciates relative to the New Zealand dollar, this means that the pound can buy more New Zealand dollars than before. As a result, goods from New Zealand will become more expensive for consumers in the U.K.

When a currency appreciates, imports generally become cheaper while exports become more expensive for the foreign market. Since New Zealand goods will be more expensive for U.K. consumers, the U.K.'s demand for New Zealand goods will likely decline.

Therefore, the correct response is:

The U.K.'s demand for New Zealand goods will decline.