The correct option for the decrease of US dollar supply in the foreign exchange market.
Answer to Problem 5MCQ
Option b is correct.
Explanation of Solution
Explanation for the correct option:
b
If consumers start preferring fewer imports, then the payment in US dollars will be less leading to supplying fewer US dollars in the foreign exchange market.
Explanation for incorrect options:
a.
If US people start traveling abroad, then the supply of the US dollar will increase.
c.
If demand for US goods will increase, then the US will receive more currency rather than supplying dollars.
d.
If foreigners start traveling to the US, then also currency inflow will increase rather than outflow.
e.
If investment opportunities in the US are increased, then the money inflow will increase
Foreign Exchange rate: The rate at which currencies of two different countries are exchanged. In other words, it is the rate at which one currency is exchanged with the other currency.
Chapter 42 Solutions
Krugman's Economics For The Ap® Course
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