Under a System of Flexible Exchange Rates, an Increase in the Supply

question 147

Multiple Choice

Under a system of flexible exchange rates, an increase in the supply of foreign exchange (an increase in the demand for the dollar) will cause the

• A) dollar to appreciate.
• B) dollar to depreciate.
• C) U.S. trade deficit to decrease.
• D) U.S. inflation rate to increase.

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Definitions:

Law of Demand

States that, all other factors being equal, as the price of a good increases, demand for that good decreases, and vice versa.

Quantity Demanded

The amount of a good or service that consumers are willing and able to purchase at a specific price.

Price

The amount of money required to purchase a good or service, determined by factors such as supply and demand.

Normal Good

A type of good for which demand increases when income increases, demonstrating a direct relationship between income and demand.