Question

In the open economy macroeconomic model, the amount of dollars demanded in the market for foreign-currency exchange at a given real exchange rate increases if a. either U.S. imports or exports increase. b. either U.S. imports or exports decrease. c. either U.S. imports increase or U.S. exports decrease. d. either U.S. imports decrease or U.S. exports increase.

Answer 1

Answer:

d. either U.S. imports decrease or U.S. exports increase

Explanation:

International trade occurs when countries buy and sell between themselves. This results from one country's comparative advantage in producing a good over other countries.

As a result when a country exports a lot of goods it's currency is in high demand. This is because the other country has to buy in the home country's currency, so large volume of export means large demand for the country's currency.

It also follows that when it's imports decreases it's currency will also be in high demand since less of it is being given to buy foreign goods.