Assume that labor productivity growth is slower in the United States than in its trading partners.Given a system of floating exchange rates,the impact of this growth differential for the United States will be:
A) Increased exports and an appreciation of the dollar
B) Increased exports and a depreciation of the dollar
C) Increased imports and an appreciation of the dollar
D) Increased imports and a depreciation of the dollar

Question

Quizplus · Accepted Answer

If labor productivity growth is slower in the United States compared to its trading partners, it means that U.S. goods become relatively more expensive compared to goods produced by other countries. As a result, imports from other countries become relatively cheaper, leading to increased imports. This would put downward pressure on the U.S. dollar, causing it to depreciate. Therefore, the correct answer is D) Increased imports and a depreciation of the dollar.

Assume That Labor Productivity Growth Is Slower in the United