Question

If the value of the Euro falls compared to the Dollar, what is the likely outcome for the US balance of trade with the EU?

American exports to the EU fall
American imports from the EU fall
American imports from the EU rise
American exports to the EU rise

Answer 1

If the Euro loses value against the Dollar, American imports from the EU are likely to rise as European products become cheaper in terms of dollars, while American exports to the EU may decrease as they become more expensive for European buyers.

Step-by-step explanation:

If the value of the Euro falls compared to the Dollar, it will make European goods and services cheaper for U.S. consumers. Consequently, this would likely lead to an increase in American imports from the EU, as U.S. consumers and businesses can buy more European goods for the same amount of dollars. On the other hand, U.S. goods and services become more expensive for European consumers, which could result in a decrease in American exports to the EU because they would have to spend more euros to buy the same quantity of U.S. goods.

Answer 2

A fall in the value of the Euro compared to the Dollar would likely lead to a decrease in American exports to the EU and an increase in American imports from the EU.

Step-by-step explanation:

If the value of the Euro falls compared to the Dollar, the likely outcome for the U.S. balance of trade with the EU would be that American exports to the EU fall. This happens because a weaker Euro means that Eurozone consumers and businesses would find U.S. goods more expensive, and thus demand for those goods would decrease. Conversely, American imports from the EU would likely rise since European goods would become cheaper for U.S. consumers and businesses, leading to increased demand for these goods.