Current Account Surplus and Currency Appreciation Steps:

• A current account surplus occurs when exports exceed imports, leading to net inflow of foreign currency.
• This inflow increases demand for the domestic currency as foreigners buy it to pay for exports.
• Higher demand appreciates the domestic currency in foreign exchange markets.
• Appreciation means the foreign exchange rate (value of foreign currency in domestic terms) depreciates.

Why B is correct:

• By definition, a current account surplus boosts demand for the domestic currency, causing appreciation, which depreciates the foreign exchange rate (foreign currency buys fewer domestic units).

Why the others are wrong:

• A: Surplus boosts net exports and aggregate demand, increasing (not decreasing) employment and reducing unemployment.
• C: Opposite of A; surplus supports higher employment via economic growth.
• D: "Deflation" misapplies to exchange rates; it refers to falling prices, not currency value changes.

Final answer: B