Suppose that prices in the United States rise relative to prices in France.We expect that (on the foreign exchange market)the demand for U.S.dollars will __________ and the supply of dollars will __________.

Question

Quizplus · Accepted Answer

When prices in the United States rise relative to prices in France, U.S. goods become more expensive compared to French goods. This leads to a decrease in demand for U.S. dollars as fewer people and businesses need dollars to buy U.S. goods. At the same time, the supply of dollars increases because Americans need more euros to buy relatively cheaper French goods, leading them to sell more dollars in exchange for euros.

Suppose That Prices in the United States Rise Relative to Prices