Suppose that you are a U.S. producer of a commodity good competing with foreign producers. Your inputs of production are priced in dollars and you sell your output in dollars. If the U.S. currency depreciates against the currencies of our trading partners,
A)your competitive position is likely improved.
B)your competitive position is likely worsened.
C)your competitive position is unchanged.

Question

Quizplus · Accepted Answer

If the U.S. currency depreciates, it means that the dollar is weaker compared to other currencies. As a result, your exports become cheaper for foreign buyers, making your goods more competitive compared to foreign producers. On the other hand, your inputs of production will become more expensive, but the overall effect is likely to boost your competitive position. Therefore, option A is the correct choice.

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