An increase in inflation in the United States relative to the rate in France would make:

Question

Quizplus · Accepted Answer

An increase in inflation in the United States would cause a depreciation in the value of the U.S. dollar, making U.S. goods relatively less expensive in both the United States and France. However, it would also make French goods relatively less expensive in the United States, since the U.S. dollar could buy more French goods for the same amount of dollars. On the other hand, U.S. goods would become relatively more expensive in France, since the French euro could buy fewer U.S. goods for the same amount of euros. Therefore, choice B is the correct answer.

An Increase in Inflation in the United States Relative to the Rate