Choose the letter of the diagram in Figure 36.2 that represents the shift in the foreign exchange market for dollars given the following situation,ceteris paribus: A sudden,unexpected surge in inflation in the United States causes reduced purchases of U.S.goods by foreigners.

Question

Quizplus · Accepted Answer

A sudden surge in inflation in the United States would cause the demand for U.S. goods to decrease, which would lead to a decrease in the demand for U.S. dollars in the foreign exchange market. This would cause the supply of U.S. dollars to increase, and the exchange rate for dollars to decrease. The diagram in choice C shows this shift, with the supply of dollars shifting to the right and the exchange rate decreasing.

Choose the Letter of the Diagram in Figure 36