Suppose that the United States and European Union are the only trading partners in the world. If the United States lowers import restrictions from the European Union, we would expect the:

Question

Quizplus · Accepted Answer

DWhen the United States lowers import restrictions from the European Union, it means that US consumers and businesses will likely buy more goods and services from the EU. This increases the demand for euros (A) because buyers need euros to pay for these goods and services, leading to an appreciation of the euro. Simultaneously, more dollars are exchanged into euros to facilitate this trade, increasing the supply of euros in the foreign exchange market (D), which could lead to a depreciation of the euro. However, the net effect on the euro's value would depend on the balance between increased demand and increased supply.

Suppose That the United States and European Union Are the Only