Under a system of floating exchange rates,relatively high productivity and low inflation rates in the United States result in:
A) An increase in the demand for foreign currency,a decrease in the supply of foreign currency,and a depreciation in the dollar
B) An increase in the demand for foreign currency,an increase in the supply of foreign currency,and an appreciation in the dollar
C) A decrease in the demand for foreign currency,a decrease in the supply of foreign currency,and a depreciation in the dollar
D) A decrease in the demand for foreign currency,an increase in the supply of foreign currency,and an appreciation in the dollar

Question

Quizplus · Accepted Answer

High productivity and low inflation in the U.S. make U.S. goods more attractive, increasing foreign demand for dollars (decreasing demand for foreign currency) and increasing the supply of foreign currency, leading to dollar appreciation.

Under a System of Floating Exchange Rates,relatively High Productivity and Low