If last year one dollar equaled one euro, and then the exchange rate shifted so that today one dollar equals two euros, which of the following would most likely NOT occur?
A)European firms would pay more for raw materials imported from the United States.
B)European consumers would purchase fewer U.S. products and services.
C)Fewer Europeans would travel to the U.S. or study at U.S. universities.
D)European firms would lower their prices on goods made with U.S. parts.

Question

Quizplus · Accepted Answer

When the exchange rate shifts so that one dollar equals two euros, it means that the euro has appreciated relative to the dollar. As a result, European firms that import raw materials from the United States would pay more, and European consumers would find U.S. products and services more expensive. Similarly, European students and tourists would find it more expensive to travel to the U.S. However, there is no reason for European firms to lower their prices on goods made with U.S. parts, as the appreciation of the euro would not affect the cost of those parts. Therefore, option D is the most likely NOT to occur.

If Last Year One Dollar Equaled One Euro, and Then