Which of the following statements is most accurate?
A) In the output market, an increase in demand for U.S. output leads to an increase in the long-run nominal dollar/euro exchange rate.
B) In the output market, an increase in the demand for European output leads to an increase in the long-run nominal dollar/euro exchange rate.
C) In the output market, a decrease in demand for U.S. output leads to a decrease in the long-run nominal dollar/euro exchange rate.
D) In the output market, an increase in the demand for European output leads to a decrease in the long-run nominal dollar/euro exchange rate.
E) In the output market, an increase in the demand for European output leads to an increase in the long-run nominal euro/dollar exchange rate.

Question

Quizplus · Accepted Answer

An increase in demand for European output leads to an increase in the long-run nominal dollar/euro exchange rate. This is because an increase in demand for European output will lead to an increase in demand for euros, which will drive up the value of the euro relative to the dollar in the long run.

Which of the Following Statements Is Most Accurate