If foreign countries are increasing their demand for U.S. financial assets, then we can expect the U.S. dollar to _____ and the current account balance to _____, all other things equal.

Question

Quizplus · Accepted Answer

When foreign countries increase their demand for U.S. financial assets, it leads to an appreciation of the U.S. dollar because more foreign currency is exchanged into dollars to purchase these assets. This makes U.S. exports more expensive and imports cheaper, potentially worsening the current account balance by increasing imports and decreasing exports.

If Foreign Countries Are Increasing Their Demand for U