If the rate of inflation in the United States rises relative to the rate of inflation in foreign nations, U.S. net exports will tend to ____, causing the exchange value of the U.S. dollar to ____.

Question

Quizplus · Accepted Answer

When the rate of inflation in the United States rises relative to foreign nations, U.S. goods become more expensive compared to foreign goods, leading to a decrease in U.S. net exports. As demand for U.S. dollars decreases (since fewer foreign buyers need dollars to buy U.S. goods), the exchange value of the U.S. dollar tends to fall.

If the Rate of Inflation in the United States Rises