Question

Which of the following would tend to shift the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model to the right?
a. the expected rate of return on U.S. assets rises
b. the exchange rate falls
c. the expected rate of return on U.S. assets falls
d. the exchange rate rises

Answer 1

Answer:

The right answers are either b. or d., or both.

Explanation:

When the dollar loses value, there is higher demand for foreign imports in a country because they become cheaper. When the dollar gains  in value, a foreign country´s exports increase. Changes in the value of currencies reflect changes in demand and supply. An increase in exports will shift the demand curve of the dollar higher. A reduction of imports will have a contrary effect.