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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Suppose U.S. interest rates decline compared to the rest of the world. What would be the likely impact on the demand for dollars, supply of dollars, and exchange rate for dollars compared to, say, euros?

To determine

Impact of U.S. interest rates on demand for dollars, supply of dollars, and exchange rate for dollars as compared to euros.

Explanation

The decline in U.S interest rate will lead to a fall in the demand for dollars, but the supply will remain constant and the exchange rate for dollars will fall as compared to the euro. This will discourage the import as foreign goods became costlier.

As per the law of demand, rise in price leads to fall in demand. Alternatively, a fall in the exchange rate will attract foreign tourism because a foreign tourist will enjoy a cheap vacation...

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