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

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 increase in the demand for Swedish krona and an increase in the supply of dollars in the foreign exchange market as Americans and others exchange more dollars for krona to buy relatively cheaper Swedish goods, shifting the supply curve of dollars to the right.

An Increase in the U