If foreign manufacturers cut manufacturing costs and profit margins in response to a depreciation in the U.S.dollar, the effect of these actions is to

Question

Quizplus · Accepted Answer

When foreign manufacturers cut manufacturing costs and profit margins in response to a depreciation in the U.S. dollar, it makes their goods cheaper or more competitive in price, even in the face of a weaker dollar. This can maintain or increase their export volumes to the U.S., thereby reducing the speed at which the U.S. trade deficit improves. Essentially, it takes longer for the depreciation to lead to a smaller trade deficit because the foreign goods remain competitively priced in the U.S. market.

If Foreign Manufacturers Cut Manufacturing Costs and Profit Margins in Response