Question

When the exchange rate between the U.S. dollar and the euro changes from 1.30 euros per dollar to 1.00 euro per dollar the dollar has ________ and U.S. goods have become ________ to people in Europe so that quantity of U.S. dollars demanded ________.

Answer 1

Answer:

The correct words that fills the gaps are: depreciated; more expensive; decreases.

Explanation:

Currency devaluation is an active economic strategy. Sometimes it is used when countries are heavily indebted and the government decides to reduce the official value of their currency in relation to that of foreign currencies, in order to increase the price of imported goods and the value of goods exported from the country .

The purpose of the devaluation of a country's currency could be related to the need to liquefy liabilities, be more competitive or avoid capital flight. However, it is a risky decision since it could lead to hyperinflation.