Which of the following statements is MOST accurate?
A) A relative expansion of U.S. output causes a long-run depreciation of the dollar against the euro, while a relative expansion of European output causes a long-run real appreciation of the dollar against the euro.
B) A relative decline of U.S. output causes a long-run depreciation of the dollar against the euro, while a relative expansion of European output causes a long-run real appreciation of the dollar against the euro.
C) A relative expansion of U.S. output causes a long-run appreciation of the dollar against the euro, while a relative expansion of European output causes a long-run real depreciation of the dollar against the euro.
D) A relative expansion of U.S. output causes a long-run depreciation of the dollar against the euro, while a relative decline of European output causes a long-run real appreciation of the dollar against the euro.
E) A relative decline of U.S. output causes a long-run depreciation of the dollar against the euro, while a relative decline of European output causes a long-run real appreciation of the dollar against the euro.

Question

Quizplus · Accepted Answer

A relative expansion of U.S. output causes a long-run depreciation of the dollar against the euro because it increases the demand for euros (to buy U.S. goods) and decreases the demand for dollars (to buy European goods). A relative expansion of European output causes a long-run real appreciation of the dollar against the euro because it increases the demand for dollars (to buy European goods) and decreases the demand for euros (to buy U.S. goods).

Which of the Following Statements Is MOST Accurate