A surplus in our balance of payments causes the dollar to __________, which causes the surplus to __________.
A) appreciate; increase
B) appreciate; decrease
C) depreciate; increase
D) depreciate; decrease

Question

Quizplus · Accepted Answer

A surplus in the balance of payments typically leads to an appreciation of the domestic currency because it indicates that the demand for the currency is higher than its supply. As the currency appreciates, domestic goods become more expensive for foreigners, potentially reducing exports and increasing imports, which would decrease the surplus.

A Surplus in Our Balance of Payments Causes the Dollar