Suppose that prices in France increase by 15 percent while prices in the United States remain relatively stable.We would expect that (on the foreign exchange market)the demand for U.S.dollars will __________ and the supply of U.S.dollars will __________.

Question

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When prices in France increase, French goods become more expensive relative to U.S. goods. This makes U.S. goods more attractive, increasing the demand for U.S. dollars to purchase them. Simultaneously, fewer U.S. dollars will be supplied as fewer people will want to buy the now more expensive French goods.

Suppose That Prices in France Increase by 15 Percent While