If U.S. inflation suddenly becomes much higher than European inflation, the U.S. demand for European goods will ____. In addition, the supply of euros to be sold for dollars will ____; both forces will place ____ pressure on the value of the euro.

Question

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If U.S. inflation is higher than European inflation, U.S. goods become relatively more expensive, increasing the demand for European goods. This increases the demand for euros. Simultaneously, the supply of euros declines as Europeans find U.S. goods less attractive. Both factors put upward pressure on the euro's value.

If US Inflation Suddenly Becomes Much Higher Than European Inflation, the the U.S