Question

Suppose a news article reports, "Dismal jobs report suggests the Federal Reserve will lower interest rates." If the Fed does lower interest rates, the dollar will _____ against foreign currencies, and U.S. goods will become _____ for foreigners.a. fall; more expensiveb. fall; cheaperrise; c. cheaperrise; d. more expensive

Answer 1

Answer:

Fall, cheaper

Explanation:

If the Fed lowers interest rates, it will do so by buying U.S. Government securities, and to do so, will print money. This money will enter the U.S. economy.

Because the money supply of U.S. dollars is higher, the U.S. currency will fall in value against foreign currencies, and this will make U.S. goods expressed in Dollars cheaper against foreign goods.

Foreigners will now start to import more U.S. goods because of that.