If the price level rises in the United States but not in foreign nations and the current exchange rate does not change, the expected future exchange rate
A) rises.
B) falls.
C) stays the same.
D) You can't tell from the given information.

Question

Quizplus · Accepted Answer

If the price level rises in the United States but not in foreign nations, then American goods become relatively more expensive compared to foreign goods. As a result, people in the United States will buy more foreign goods, and people in foreign countries will buy fewer American goods. This leads to a higher demand for foreign currency and a lower demand for American currency. Thus, the value of the US dollar falls.

If the Price Level Rises in the United States but Not