Question

If the dollar appreciates against foreign currencies, which of the following statements are TRUE? I Foreign currencies buy fewer dollars II U.S. exports are likely to rise III Foreign imports are likely to rise IV Foreign goods are more expensive in the U.S. StatusA A. I and III only StatusB B. II and IV only StatusC C. I, II, IV StatusD D. I, II, III, IV

Answer 1

When the dollar appreciates, foreign currencies buy fewer dollars, and foreign imports are likely to rise because foreign goods become relatively cheaper in the U.S. Conversely, U.S. exports tend to decrease as they become more expensive for foreign buyers, and foreign goods become less expensive in the U.S., not more.

Step-by-step explanation:

If the dollar appreciates against foreign currencies, it means that the value of the dollar has increased in comparison to other currencies. When this happens, a couple of outcomes are typically seen:

• Foreign currencies buy fewer dollars: This is true because as the dollar appreciates, it takes more of the foreign currency to buy the same amount of dollars.
• U.S. exports are not likely to rise: In fact, U.S. exports are likely to decrease because U.S. goods become more expensive for foreign buyers.
• Foreign imports are likely to rise: As the dollar strengthens, foreign goods become relatively cheaper for U.S. consumers, which usually leads to an increase in imports from other countries.
• Foreign goods are not more expensive in the U.S.: The appreciation of the dollar actually makes foreign goods less expensive in the U.S., which can lead to increased consumption of imported goods.

Therefore, the correct statements, given the appreciation of the dollar, are I and III. Thus, the answer is option A (I and III only).