S. inflation suddenly becomes much higher than European 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 U.S. inflation is higher than European inflation, U.S. consumers will find European goods relatively cheaper, increasing demand for them. This increases the demand for euros. Simultaneously, Europeans will find U.S. goods relatively more expensive, reducing their supply of euros for dollars. Both factors put upward pressure on the euro's value.

S Inflation Suddenly Becomes Much Higher Than European Inflation, the U.S