If the Australian dollar depreciates, what is the typical effect on net exports and the current account, assuming other factors constant?

• A. Exports cheaper and imports more expensive; exports rise, imports fall; current account improves.
• B. Exports more expensive and imports cheaper; current account worsens.
• C. A weaker AUD makes exports cheaper and imports more expensive, supporting higher exports and lower imports, improving the current account.
• D. Depreciation has no effect on the current account; it only affects exchange rates.

Answer: (C)