Question

The U.S. trade deficit has increased the value of the dollar.

Question 15 options:
True
False

Answer 1

False

Step-by-step explanation:

The U.S. trade deficit has decreased the value of the dollar

McGraw Hill Understanding Economics

"To illustrate, large U.S. trade deficits from 2003 to 2006 flooded the foreign exchange markets withdollars. The increase of dollars on world markets caused the dollar to lose some of its value, making imports more expensive for Americans and exports less expensive for foreigners. When exports surge, employment and income is generated in the export-oriented industries.The persistent U.S. trade deficit since 2003 has helped domestic U.S. export industries by driving down the value of the dollar." (513)

Answer 2

False

Step-by-step explanation:

A trade deficit occurs when the value of a country imports is more than its exports. If a country's currency has a high value, its exports become expensive while imports become cheap.

The US dollar strength is a reflection of the country's economic conditions. Since the end of the 2008-2009 recession, the dollar has been gaining strength as the economy has been improving. Over the same period, the trade deficit has also been on the rise.

The trade deficit is not the reason why the US Dollar value has increased. During the 2008 recession, the US had a trade deficit; the economy was weak, and so was the dollar. The dollar is strong because of the Fed's monetary policies, including the 2015 hike in interest rates and money supply restrictions.