ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If the dollar depreciates (the exchange rate falls), the relative price of domestic goods and services falls while the relative price of foreign goods and services increases. 1. The change in relative prices will increase U.S. exports and decrease its imports.

Detailed explanation-2: -Export costs rise: If the U.S. dollar appreciates, foreigners will find American goods more expensive because they have to spend more for those goods in USD. That means that with the higher price, the number of U.S. goods being exported will likely drop.

Detailed explanation-3: -If the value of the U.S. dollar declines, the price of the goods produced in America decreases. This makes American-made goods relatively cheaper, which increases the purchase of the goods due to increased domestic consumption as well as increased exports.

Detailed explanation-4: -However, as the dollar weakens, U.S. exports become cheaper to foreigners because they can get more U.S. dollars for the same amount of their currency to buy American goods. Even though the price of the exported goods hasn’t changed, foreigners essentially can buy U.S. goods at a discount when the dollar is weaker.