If the U.S. exchange rate decreases relative to foreign currencies, then
A) imports and exports of the United States will both increase.
B) imports and exports of the United States will both decrease.
C) imports of the United States will decrease and exports of the United States will increase.
D) imports of the United States will increase and exports of the United States will decrease.

Question

Quizplus · Accepted Answer

When the U.S. exchange rate decreases relative to foreign currencies, it becomes more expensive for U.S. residents to purchase imported goods. This leads to a decrease in imports. On the other hand, it becomes cheaper for foreign residents to purchase U.S. goods, leading to an increase in exports. Therefore, imports of the United States will decrease, and exports of the United States will increase.

If the US Exchange Rate Decreases Relative to Foreign Currencies, Then