Question

True or False? "U.S. exports create a demand for foreign currencies; foreign imports of U.S. goods create a supply of foreign currencies." Explain. Would a decline in U.S. consumer income or a weakening of U.S. preferences for foreign products cause the dollar to depreciate or to appreciate? Other things equal, what would be the effects of that depreci

Answer 1

Answer:

(I) False: Foreign export of US God's create's demand for for the Dollar buyers will need to source For dollars in order to make payments.

Explanation:

(Ii) A decline in U.S. consumers income or the weakening of U.S preferences for foreign products will lead the Appreciation of the U.S.Dollar.

This is because the Demand for the U.S Dollars remans the same but the Demand for foreign currencies will drop due to weakening purchasing power.

Hence,their will be a balance of trade in favor of the U.S causing the Appreciation of the U.S Dollar.

(III) Depreciation is decline in the price of goods and services within an economy due to certain prevailing conditions which could be a ride in Supply without a corresponding rice in demand.