Ceteris paribus, if exchange rates are flexible and U.S consumers buy more foreign goods, the
A) dollar will depreciate.
B) supply of U.S. dollars in foreign exchange markets will decrease.
C) dollar will appreciate.
D) demand for U.S. dollars in foreign exchange markets will decrease.

Question

Quizplus · Accepted Answer

When U.S consumers buy more foreign goods, they increase the demand for foreign currencies and decrease the demand for U.S. dollars in foreign exchange markets. This can cause the value of the dollar to decrease, or depreciate, to make foreign goods more expensive for U.S consumers, thus increasing demand for domestic goods instead.

Ceteris Paribus, If Exchange Rates Are Flexible and U