If U.S. inflation suddenly becomes much higher than European inflation, the U.S. demand for European goods will ____. In addition, the supply of euros to be sold for dollars will ____; both forces will place ____ pressure on the value of the euro.

Question

Quizplus · Accepted Answer

When U.S. inflation is higher than European inflation, U.S. goods become relatively more expensive, increasing demand for cheaper European goods. This leads to a decline in the supply of euros to be sold for dollars as Europeans find U.S. goods more expensive and buy less. Both factors contribute to upward pressure on the euro's value.

If US Inflation Suddenly Becomes Much Higher Than European Inflation, the the U.S