Question

An increase in the British demand for U.S.-produced products will have which of the following effects on the value of the dollar and the equilibrium quantity of dollars in the international exchange markets? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.

a. An increase in the value of the dollar and a decrease in the equilibrium quantity of U.S. dollars in international markets
b. An increase in the value of the dollar and an increase in the equilibrium quantity
c. A decrease in the value of the dollar and an increase in the equilibrium quantity
d. A decrease in the value of the dollar and a decrease in the equilibrium quantity

Answer 1

An increase in British demand for U.S. goods would lead to an increased demand for U.S. dollars, shifting the demand curve right, raising the dollar's value, and generally increasing the equilibrium quantity traded. The correct answer is option b.

Step-by-step explanation:

When there is an increase in the British demand for U.S.-produced products, the demand for U.S. dollars will rise as British buyers convert their pounds into dollars to complete transactions. This increase in demand will shift the demand curve for U.S. dollars to the right in the foreign exchange market. According to economic principles, this increased demand should raise the value of the dollar, as more British consumers are buying dollars, and it would also generally increase the equilibrium quantity of dollars in the market, as more dollars would need to be traded to meet the increased demand from the British. However, based on the given scenarios where despite shifts in demand or supply, the quantity traded remains the same, the correct answer to this question is (b): an increase in the value of the dollar and an increase in the equilibrium quantity of U.S. dollars in international markets.