The cost of financing U.S. government debt would be lower if foreigners decided to hold fewer U.S. dollars.

Question

Quizplus · Accepted Answer

The statement is incorrect. If foreigners decide to hold fewer U.S. dollars, the demand for U.S. dollar-denominated assets (including U.S. government debt) would decrease, leading to a decrease in their prices and an increase in their yields. This would result in higher borrowing costs for the U.S. government and higher interest rates for borrowers in the U.S. economy.

The Cost of Financing U