Under a system of floating exchange rates,relatively low productivity and high inflation rates in the United States result in:
A) An increase in the demand for foreign currency,a decrease in the supply of foreign currency,and a depreciation in the dollar
B) An increase in the demand for foreign currency,an increase in the supply of foreign currency,and an appreciation in the dollar
C) A decrease in the demand for foreign currency,a decrease in the supply of foreign currency,and a depreciation in the dollar
D) A decrease in the demand for foreign currency,an increase in the supply of foreign currency,and an appreciation in the dollar

Question

Quizplus · Accepted Answer

Under a system of floating exchange rates, a country with relatively low productivity and high inflation rates will experience a decrease in the demand for its currency and an increase in the demand for foreign currency. This will result in a decrease in the supply of its currency and an increase in the supply of foreign currency, leading to a depreciation in the value of its currency. Therefore, the correct option is A, which suggests an increase in demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar.

Under a System of Floating Exchange Rates,relatively Low Productivity and High