Question

exchange rate effect: a fall in the U.S. price level causes the U.S. interest rates to _______, , the real value of the dollar in foreign markets ________, this _______ causes U.S. net exports to ________ which _______ the quantity of goods and services demandd

Answer 1

A decline in U.S. interest rates compared to the rest of the world would lead to a decrease in the demand for dollars, an increase in the supply of dollars, and a weakening of the dollar against the euro.

Step-by-step explanation:

When U.S. interest rates decline compared to the rest of the world, the demand for dollars decreases. This is because investors seek higher returns in other countries with higher interest rates. As a result, the supply of dollars increases as people exchange their dollars for other currencies. With a decrease in demand and an increase in supply, the exchange rate for dollars compared to euros would likely decrease. In other words, the dollar would weaken against the euro.