Assume the United States has only one trading partner.The U.S.demand curve for foreign currency is drawn while holding constant all of the following factors except one.Which is the exception?

Question

Quizplus · Accepted Answer

The demand curve for foreign currency represents the quantity of foreign currency demanded at each exchange rate. It is drawn while holding constant all factors except for the exchange rate. Therefore, B is the exception since it is the variable factor that affects the exchange rate. A change in exchange rate will alter the demand for foreign currency. Incomes of U.S. consumers, expected rate of inflation in the U.S., foreign prices of foreign goods, and U.S. interest rates relative to foreign interest rates, all will affect the exchange rate, hence affects the demand for foreign currency.

Assume the United States Has Only One Trading Partner