If the U.S. economy goes into a recession but growth remains at a positive const
ID: 1125347 • Letter: I
Question
If the U.S. economy goes into a recession but growth remains at a positive constant rate for the eurozone countries (.e.g 2.5%), holding everything else constant we can expect:
Question 11 options:
An increase in the demand for U.S. exports to Europe and an increase in U.S. net exports.
An increase in the demand for European imports and a decrease in U.S. net exports.
A decrease in the demand for European imports and an increase in U.S. net exports.
No change in the demand for U.S. exports and constant U.S. net exports.
An increase in the demand for dollars in the foreign exchange market and an appreciation of the dollar in relation to the euro.
A decrease in the demand for dollars in the foreign exchange market and a depreciation of the dollar in relation to the euro.
A decrease in the supply of dollars in the foreign exchange market and an appreciation of the dollar in relation to the euro.
No change in the demand or supply of dollars in the foreign exchange market and a constant exchange rate.
A decrease in the dollar price of imports and an increase in the euro price of U.S. exports.
An increase in the dollar price of imports and a decrease in the euro price of U.S. exports.
No change in export or import prices.
A decrease in the dollar price of imports and a decrease in the euro price of U.S. exports.
An increase in imports and a decrease in U.S. exports resulting in a decrease in net exports.
No change in exports, imports and net exports.
A decrease in U.S. imports and an increase in U.S. exports resulting in a decrease in net exports.
An increase in imports and an increase in U.S. exports resulting in an increase in net exports.
An increase in the demand for U.S. exports to Europe and an increase in U.S. net exports.
An increase in the demand for European imports and a decrease in U.S. net exports.
A decrease in the demand for European imports and an increase in U.S. net exports.
No change in the demand for U.S. exports and constant U.S. net exports.
Explanation / Answer
1. Correct option: A decrease in the demand for dollars in the foreign exchange market and a depreciation of the dollar in relation to the euro.
Reason: As US goes into recession, demand for dollars in the foreign exchange market will fall (as investment in US markets becomes less attractive). As a result of this, dollar value decline and thus dollar depreciates as compares to Euro.
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