An increase in the U.S. inflation rate relative to Sweden's will
A)increase the quantity supplied of money in the foreign exchange market.
B)decrease the quantity supplied of money in the foreign exchange market.
C)shift the supply curve of dollars in the foreign exchange market to the right.
D)shift the supply curve of dollars in the foreign exchange market to the left.

Question

Quizplus · Accepted Answer

An increase in the U.S. inflation rate relative to Sweden's would make U.S. goods more expensive compared to Swedish goods. This would lead to an increased demand for Swedish krona and a decreased demand for U.S. dollars, effectively increasing the supply of dollars in the foreign exchange market as more people exchange dollars for krona. This scenario is represented by a rightward shift of the supply curve of dollars in the foreign exchange market.

An Increase in the U