For many years, the current account of the United States has been in deep defici

Question

For many years, the current account of the United States has been in deep deficit. In theory, this should lead to a weak dollar. What factors could counteract the effect of the current account deficit on the strength of the dollar? a. Foreigners use dollars as stores of value b. When inflation is expected to be low in the USA and interest rates are high, foreigners want to invest here, driving up the price of the dollar. c. The Dollar is king in the world currency markets d. Dollars are backed by the full faith and credit of the US Government and therefore maintain a constant value on the market. e. None of these explains the relative strength of the dollar in the global currency market.

Explanation / Answer

b. When inflation is expected to be low in the USA and interest rates are high, foreigners want to invest here, driving up the price of the dollar

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