In the early 2000s, the dollar depreciated relative to other currencies. Foreign policy makers claimed that the U.S. government must curtail its spending and encourage its citizens to save more. What does the U.S. saving rate have to do with the value of the dollar?
A)Nothing; those who are giving this advice do not understand economics.
B)More savings would mean more investment, and more investment would increase the value of the dollar.
C)More domestic saving would increase the interest rate, attracting more funds to the United States and thereby raising the value of the dollar.
D)More U.S. savings would reduce the consumption of foreign goods, reducing the trade deficit.

Question

Quizplus · Accepted Answer

Increased U.S. savings would reduce the need to borrow from abroad, leading to a smaller trade deficit, which can strengthen the dollar.

In the Early 2000s, the Dollar Depreciated Relative to Other