If the rate of inflation overseas rises relative to the rate of inflation in the United States, 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 overseas rises relative to the rate of inflation in the United States, U.S. goods become relatively cheaper to foreign buyers, leading to an increase in U.S. net exports. As demand for U.S. goods increases, so does the demand for U.S. dollars to pay for these goods, causing the exchange value of the U.S. dollar to rise.

If the Rate of Inflation Overseas Rises Relative to the Rate