Figure 17.3 The Swiss Franc Under a System of Floating Exchange Rates

-Refer to Figure 17.3. If the U.S. price level rises relative to the Swiss price level, then we would expect a(n)

Question

Figure 17.3 The Swiss Franc Under a System of Floating Exchange Rates
 
-Refer to Figure 17.3. If the U.S. price level rises relative to the Swiss price level, then we would expect a(n)

Quizplus · Accepted Answer

If the U.S. price level rises relative to the Swiss price level, U.S. goods become more expensive compared to Swiss goods. This would lead to an increase in the demand for Swiss francs (to buy Swiss goods) and a decrease in the supply of francs (as fewer Swiss would buy U.S. goods), resulting in a depreciation of the dollar.

Figure 173 the Swiss Franc Under a System of Floating Exchange