In theory, what should the rising U.S. current account deficit do the value of the dollar?
A) It should decrease the supply of dollars and increase the foreign exchange rate of the dollar.
B) It should increase the supply of dollars, and decrease the foreign exchange rate of dollars.
C) It should decrease the supply of dollars and decrease the foreign exchange rate of the dollar.
D) If should increase the supply of dollars and increase the foreign exchange rate of dollars.

Question

Quizplus · Accepted Answer

A rising U.S. current account deficit implies that the U.S. is importing more than it is exporting, leading to an increased supply of dollars in the foreign exchange market as dollars are exchanged for foreign currencies to pay for these imports. This increased supply, all else being equal, would decrease the foreign exchange rate of the dollar, making it less valuable compared to other currencies.

In Theory, What Should the Rising U