The current exchange rate is $1= 1. Suppose that Europeans wish to buy fewer Ame
ID: 1097842 • Letter: T
Question
The current exchange rate is $1= 1. Suppose that Europeans wish to buy fewer American products due to health concerns. What would be expected to happen to the value of the dollar and the value of the euro? The dollar will appreciate, and the euro will depreciate. The dollar will depreciate, and the euro will depreciate. The dollar will appreciate, and the euro will appreciate. The dollar will depreciate, and the euro will appreciate.
The current exchange rate is $1= 1. Suppose that Europeans wish to buy fewer American products due to health concerns. What would be expected to happen to the value of the dollar and the value of the euro? The dollar will appreciate, and the euro will depreciate. The dollar will depreciate, and the euro will depreciate. The dollar will appreciate, and the euro will appreciate. The dollar will depreciate, and the euro will appreciate.Explanation / Answer
Since Europeans will buy fewer US products, the deamnd for US exports will fall. As a result there will lesser demand for dollars as compared to euro.
The equilibrium now might be, say for example, 1.05 dollars=1 euro. People have to give more dollars now to get 1 euro.
The value of dollar falls and value of euro increases. This means:
D. The dollar will depreciate and the euro will appreciate.
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