Between 1998 and the End of 2000, the U

question 22

Multiple Choice

Between 1998 and the end of 2000, the U.S. ran a large trade deficit; this should have caused the dollar to depreciate against foreign currencies but instead the dollar appreciated. The main reason for this is:

• A) foreign exchange markets are slow to react.
• B) the supply of dollars actually fell.
• C) the dramatic increase in U.S. stock prices attracted a lot of foreign capital increasing the demand for dollars by more than the increase in the supply of dollars.
• D) the demand for dollars shifted left by more than the supply of dollars shifted right.