The supply curve of dollars decreases (shifts to the left) in the foreign exchange market.This could be the result of
A) the current exchange rate of the dollar rising (appreciating).
B) the current exchange rate of the dollar falling (depreciating).
C) an increase in the U.S. inflation rate relative to the inflation rate in other countries.
D) a decrease in the U.S. inflation rate relative to the inflation rate in other countries.

Question

Quizplus · Accepted Answer

An increase in the U.S. inflation rate relative to other countries makes U.S. goods more expensive compared to foreign goods. This reduces the demand for dollars as fewer foreign entities need dollars to buy U.S. goods, leading to a decrease in the supply of dollars in the foreign exchange market.

The Supply Curve of Dollars Decreases (Shifts to the Left)