Question

F one U.S. dollar equals one euro, which of these could result if the euro experiences inflation?

A. E.U. citizens could purchase more goods in the U.S. for less money.
B. E.U. citizens would purchase large amounts of U.S. stock.
C. U.S. citizens would purchase more goods from the E.U. for less money.
D. U.S. citizens would purchase large amounts of E.U. stock.

Answer 1

Answer: The correct option is C.

Explanation: Inflation is the measure of the rate at which the price level of goods and services increases over a period of time in an economy.

Inflation indicates the decrease in purchasing power of the currency of a nation.

Therefore if the euro experiences inflation, this would lead to a decrease in purchasing power of the currency. Hence, the more stable currency which is the dollar, that was initially equal to the euro, will now surpass the euro in value and purchasing power.

This will lead to the ability to procure more goods and services from the E.U. using the dollar.