Suppose the U.S. dollar weakens against the euro (and against other major currencies). We know with certainty that this weakening of the dollar will cause which of the following to occur?
A) a recessionary gap
B) an inflationary gap
C) a deflationary gap
D) none of the above

Question

Quizplus · Accepted Answer

There is no way to predict with certainty how a weakening of the U.S. dollar will impact the economy. It could lead to increased exports and economic growth, or it could lead to inflation if import prices increase. Therefore, none of the options A, B, or C can be considered as a certain consequence.