ECONOMICS
TRADE EXCHANGE AND INTERDEPENDENCE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Increased exports and appreciation of the US Dollar
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Increased exports and depreciation of the US dollar
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Increased imports and appreciation of the US Dollar
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Increased imports and depreciation of the US Dollar
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Detailed explanation-1: -A variety of economic factors can contribute to depreciating the U.S. dollar. These include monetary policy, rising prices or inflation, demand for currency, economic growth, and export prices.
Detailed explanation-2: -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-3: -Inflation. A devalued currency can result in “imported” inflation for countries that are substantial importers. A sudden 20% decline in the domestic currency could result in imports costing 25% more, as a 20% decline means a 25% increase is needed to get back to the original price point.
Detailed explanation-4: -The economics of supply and demand dictate that when demand is high, prices rise and the currency appreciates in value. In contrast, if a country imports more than it exports, there is relatively less demand for its currency, so prices should decline. In the case of currency, it depreciates or loses value.