If European inflation suddenly becomes much higher than U.S. 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.
A) increase; decline; upward
B) increase; decline; downward
C) decrease; increase; upward
D) decrease; increase; downward
E) none of the above

Question

Quizplus · Accepted Answer

If European inflation is higher, U.S. demand for European goods will decrease due to higher prices. The supply of euros will increase as Europeans exchange euros for dollars to buy cheaper U.S. goods, putting downward pressure on the euro.

If European Inflation Suddenly Becomes Much Higher Than U