Which of these events would increase the demand for the US dollar, causing the value of...
Which of these events would increase the demand for the US dollar, causing the value of the dollar to rise?
a) American cars become suddenly more popular in Europe.
b) Interest rates in the US drop.
c) Unemployment increases sharply in the European Union.
Homework Answers
Correct option is (a).
Higher popularity of US cars in Europe will increase European import demand for US cars, thus increasing US export demand for domestically-made cars. As a result, Europeans will demand more dollars (in order to pay for higher imports from US), thus increasing demand for dollar, appreciating the dollar.
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