An increase in demand for a currency, would, ceteris paribus, cause the currency to

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Understanding currency demand and value: when there is an increase in demand for a currency, all else equal, its value tends to rise relative to other currencies.

Option a. 'a. appreciate' — This is the correct interpretation under ceteris paribus, because higher demand increases the currency’s price in the foreign exchange market, making it appreciate.

Option b. 'become less valuable' — This would be the opposite of what happens when demand increases; with higher demand, the currency typically strengthens, not weakens.

Option c. 'be in surplus' — A currency being in surplus refers to the balance of payments or the supply-demand balance in trade and financial accounts, not to the direct result of an increase in demand on its own value; this option conflates market conditions with accounting surpluses in a way that doesn’t describe the immediate effect on currency value.

Option d. 'depreciate' — Depreciation is the outcome of decreased demand or increased supply, or other negative factors; an increase in demand would not cause depreciation in the ceteris paribus scenario.

In summary, the key concept is that higher demand for a currency raises its value in the foreign exchange market, leading to appreciation, while the other options describe outcomes that do not align with the direct effect of increased demand.

MUF0062 Economics Unit 2 - Semester 2, 2025 Currency Exchange Rates - Video Intro & Quick Quiz (10 - 15 minutes)

An increase in demand for a currency, would, ceteris paribus, cause the currency to

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