A relatively high rate of inflation in the United States will result in
A) an appreciation of the dollar against foreign currencies in the long run.
B) a depreciation of the dollar against foreign currencies in the long run.
C) an appreciation of the dollar against foreign currencies in the short run.
D) a depreciation of the dollar against foreign currencies in the short run.

Question

Quizplus · Accepted Answer

A relatively high rate of inflation in the United States compared to other countries tends to decrease the value of the dollar in relation to foreign currencies in the long run, leading to its depreciation. This is because higher inflation in the U.S. makes U.S. goods more expensive relative to foreign goods, reducing demand for the dollar.

A Relatively High Rate of Inflation in the United States