Question

Use the word labels to fill the blanks and complete the sentences below. Not all of the words will be used, but all the blanks should be filled. Assume the world has only the U.S. and Germany, and that trade between them is balanced such that neither runs a trade deficit nor surplus. If exchange rates now change such that the euro becomes cheaper for Americans to buy (and all else remains the same), we would expect: U.S. exports to Germany will , and U.S. imports from Germany will .These changes in trade will cause net exports (NX) in the U.S. to .The U.S would begin to run a trade and experience a net capital . U.S. savings will be domestic investment.

Answer 1

U.S. exports to Germany will increase, and U.S. imports from Germany will decrease. These changes in trade will cause net exports (NX) in the U.S. to increase. The U.S. would begin to run a trade surplus and experience a net capital inflow. U.S. savings will be equal to domestic investment.

What happens here

When the euro becomes cheaper for Americans, U.S. exports to Germany are expected to increase increase as American goods become relatively less expensive for German buyers.

Conversely, U.S. imports from Germany are expected to decrease because German goods become relatively more expensive for American consumers.