Question

A column on barrons.com noted that in testifying before Congress, Treasury Secretary Janet Yellen stated that the Biden administration would not "seek a weaker currency to gain competitive advantage."

Source: Nathan Sheets, "Yellen is Retiring the Strong Dollar Policy. What Comes Next is Tricky," barrons.com, February 8, 2021.
1. With a weaker currency, would it take more dollars or fewer dollars to buy a euro, pound, or yen?
A.
Less dollars, since 'weaker' means that the U.S. dollar falls in value relative to other currencies
B.
More dollars, since 'weaker' means that the U.S. dollar gains in value relative to other currencies
C.
Less dollars, since 'weaker' means that the U.S. dollar gains in value relative to other currencies
D.
More dollars, since 'weaker' means that the U.S. dollar falls in value relative to other currencies

2. In what sense would a weaker currency provide the United States with a competitive advantage?
A.
A weaker dollar lowers the U.S. dollar prices of foreign-made goods in the U.S.
B.
A weaker dollar lowers the foreign currency prices of U.S.-made goods in other countries.
C.
A weaker dollar lowers the U.S. dollar price of U.S.-made goods in other countries.
D.
A weaker dollar raises the foreign currency prices of U.S.-made goods in other countries.

3. With a weaker currency, who in the United States would gain from this competitive advantage and who would they gain it over?
A.
U.S. importers should gain from this competitive advantage over countries that import large quantities of U.S. goods.
B.
U.S. importers should gain from this competitive advantage over countries that export large quantities to U.S. goods.
C.
U.S. exporters should gain from this competitive advantage over countries that export large quantities to the U.S.
D.
U.S. exporters should gain from this competitive advantage over countries that import large quantities of U.S. goods.

Answer 1

It requires more dollars to buy foreign currency when the dollar is weaker, which lowers the foreign price of U.S.-made goods and benefits U.S. exporters selling abroad.

Step-by-step explanation:

In answering the student's question regarding currency values and economic advantages, it's important to understand currency strength and its implications.

Answers to the Student's Questions

1. More dollars, since 'weaker' means that the U.S. dollar falls in value relative to other currencies (Option D).
2. A weaker dollar lowers the foreign currency prices of U.S.-made goods in other countries, providing a competitive advantage as it makes exports more affordable and attractive internationally (Option B).
3. U.S. exporters would gain from this competitive advantage over countries that import large quantities of U.S. goods because a weaker dollar makes U.S. goods less expensive for foreign buyers (Option D).

For a U.S. firm selling abroad, a weaker U.S. dollar makes its goods cheaper in the foreign market, potentially increasing its exports. Conversely, a stronger dollar would be beneficial for foreign firms selling in the U.S. because it results in higher profits when converting dollars into their home currency.