ECONOMICS
TRADE EXCHANGE AND INTERDEPENDENCE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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help to reduce a US trade deficit.
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increase the foreign price of US exports.
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reduce the price of US imports.
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reduce US inflation
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Detailed explanation-1: -a. 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: -For the trade deficit to turn into a surplus, imports must fall and exports must rise. One way this adjustment can take place is if the dollar depreciates, making imports more expensive for Americans and exports cheaper for foreigners.
Detailed explanation-3: -Economic Effects of a Declining Dollar A weaker dollar buys less in foreign goods. This increases the price of imports, contributing to inflation. As the dollar weakens, investors in the benchmark 10-year Treasury and other bonds sell their dollar-denominated holdings.
Detailed explanation-4: -Consume less and save more. If US households or the government reduce consumption (businesses save more than they spend), imports will drop and less borrowing from abroad will be needed to pay for consumption. Depreciate the exchange rate. Tax capital inflows. 06-Nov-2017