If European incomes rose, European tariffs on U.S.goods increased, or their tastes for American goods increased, Europeans would demand ____ U.S.goods, leading them to ____ their supply of Euros to obtain the added dollars necessary to make those purchases.

Question

Quizplus · Accepted Answer

If European incomes rise, their demand for American goods would increase. To obtain these goods, they would need to exchange more Euros for U.S. dollars, leading to an increase in the supply of Euros on the foreign exchange market, causing the Euro to decrease in value relative to the U.S. dollar. This would make American goods cheaper for Europeans, leading to even further increase in demand for U.S. goods. Similarly, if European tariffs on U.S. goods increased or their tastes for American goods increased, the demand for U.S. goods would increase, leading to an increase in the supply of Euros to obtain the added dollars necessary to make those purchases. Therefore, the correct answer is A, more U.S. goods; increase.

If European Incomes Rose, European Tariffs on U