Question

Use the supply and demand of United States dollars to fully explain a situation that would cause the American dollar to depreciate.

Answer 1

The increase in supply leads to depreciation while the increase in demand leads to appreciation.

If an American demand another currency, he/she needs to supply his/her own currency.

Example: In a situation, whereby an American wants to buy German products, he/she will supply dollars to pay for euros. In this scenario, the euro appreciates because there's increase in its demand, while dollar depreciates because there is increase in its supply.