Question

The United States democratically elects a new President, one who plans to decrease trade tariffs among the nation’s foreign partners. The stable election, along with an encouraging economic forecast, will likely have what effect on the value of the U.S. dollar?

A) Neither trade relationships, nor political conditions, tend to affect the value of a nation’s currency.

B) The value of the dollar will decrease, since substantial and sudden inflation is likely to occur during any economic growth period.
C) The value of the dollar will increase, since substantial and sudden inflation is likely to occur during any economic growth period.
D) Since there are economic and political indicators that predict a strong and growing economy, the dollar will tend to appreciate as demand for the currency increases.

Answer 1

D) Since there are economic and political indicators that predict a strong and growing economy, the dollar will tend to appreciate as demand for the currency increases.

Explanation:

Since there are economic and political indicators that predict a strong and growing economy, the dollar will tend to appreciate as demand for the currency increases. Current and expected future economic and political conditions of nations have effects on the value of that nation’s currency. Stabilized economic growth and a steady political climate encourage investment, both foreign and domestic. The higher demand for investment leads to an appreciation of the currency.

Answer 2

D) Since there are economic and political indicators that predict a strong and growing economy, the dollar will tend to appreciate as demand for the currency increases.

Step-by-step explanation:

Under the conditions described in the excerpt, the United States economy would be expected to grow in the term of the new president, since the president wants to decrease tariffs, and tariffs are harmful for the overall economy.

This enviroment of strong economy would increase the demand for U.S. dollar, increasing its value against other curriences (the dollar will tend to appreciate).

Finally, a more expensive dollar and lower tariffs will encourage imports to the U.S., something that will benefit American customers.