Final answer:
The value of dollars in the foreign exchange market can change due to factors such as the rate of return for U.S. dollars, relative inflation, and the demand and supply by international financial investors. These factors can lead to shifts in the demand and supply curves, resulting in changes in the exchange rate value. However, the quantity of dollars traded often remains the same.
Step-by-step explanation:
In the market for foreign-currency exchange, there are several factors that can cause the value of dollars to change and the equilibrium quantity of net exports to shift. One factor is the rate of return for U.S. dollars. When there is a higher rate of return, holding dollars becomes more attractive, leading to an increase in demand for dollars. This causes the demand curve to shift to the right. Simultaneously, the supply of dollars decreases as people are less willing to supply their dollars in the market. This causes the supply curve to shift to the left. As a result, the value of dollars in the foreign exchange market increases, and the equilibrium quantity of net exports remains the same.
Another factor that can impact the value of dollars and the equilibrium quantity of net exports is relative inflation. If a country experiences high inflation compared to other economies, the purchasing power of its currency decreases. This discourages people from acquiring or holding the currency. Consequently, the demand for the currency decreases while the supply increases, leading to a decrease in the exchange rate value. However, the quantity of currency traded remains the same.
Furthermore, international financial investors can also influence the value of dollars and the equilibrium quantity of net exports. When these investors demand more U.S. dollars to purchase U.S. government bonds and supply fewer dollars in the market, the demand curve shifts to the right, and the supply curve shifts to the left. This appreciation of dollars increases the exchange rate value but does not change the quantity of dollars traded.