Holding other things constant,decreases in the price level in the US will
A)Cause the dollar to appreciate
B)Cause the dollar to depreciate
C)Does not affect the dollar value
D)None of the above

Question

​Holding other things constant,decreases in the price level in the US will
A)​Cause the dollar to appreciate
B)Cause the dollar to depreciate
C)Does not affect the dollar value
D)​None of the above

Quizplus · Accepted Answer

When the price level decreases, the purchasing power of the dollar increases, making US goods less expensive relative to other countries. This leads to an increase in demand for US goods, and therefore an increase in demand for dollars to purchase those goods. This increased demand for dollars causes the value of the dollar to appreciate.

​Holding Other Things Constant,decreases in the Price Level in the US

Holding Other Things Constant,decreases in the Price Level in the US