If U.S. inflation suddenly increased while European inflation stayed the same, there would be:
A) an increased U.S. demand for euros and an increased supply of euros for sale.
B) a decreased U.S. demand for euros and an increased supply of euros for sale.
C) a decreased U.S. demand for euros and a decreased supply of euros for sale.
D) an increased U.S. demand for euros and a decreased supply of euros for sale.

Question

Quizplus · Accepted Answer

If U.S. inflation suddenly increased while European inflation stayed the same, the U.S. dollar would depreciate against the euro. This would make euros more expensive for Americans to buy, so U.S. demand for euros would decrease. At the same time, the depreciation of the dollar would make it cheaper for Europeans to buy U.S. goods and services, so the supply of euros for sale would decrease.

If US Inflation Suddenly Increased While European Inflation Stayed the Same