Suppose the United States has a fixed exchange rate, and it faces domestic inflation and a trade surplus.Assuming it desires overall balance, if the United States revalues the dollar, other things equal one would expect which of the following to occur?
A) inflation to become more severe and the trade surplus to become less severe
B) inflation to become less severe and the trade surplus to become less severe
C) inflation to become less severe and the trade surplus to become more severe
D) inflation to become more severe and the trade surplus to become more severe

Question

Quizplus · Accepted Answer

Revaluing the dollar makes imports cheaper and exports more expensive, which can reduce inflation by lowering import prices and decrease the trade surplus by reducing export competitiveness.

Suppose the United States Has a Fixed Exchange Rate, and It