Explain what would be the effect on the dollar/ euro exchange rate if economic g

Question

Explain what would be the effect on the dollar/ euro exchange rate if economic growth increased in the EMU but not in the United States. Explain what would be the effects on the dollar/euro exchange rate if the price level increased in the United States than in the European Monetary Union (EMU). Explain what would happen to the dollar/euro exchange rate if the interest rate increased in the United States but remained unchanged in the European Monetary union (EMU). Explain what would happen to the dollar/euro exchange rate if suddenly the expectations arises that the U.S, dollar will appreciate in the future.

Explanation / Answer

1. If economic growth increases in EMU, that means the dollar / euro exchange would increase.

The value of euro would increase in terms of dollars.It suggests that the imports from Europe would be costlier compared to the exports.

2. If the price level increases less in US than in EMU; that means the value of euro would increase in terms of dollars.It suggests that the imports from Europe would be costlier compared to the exports.

3. If the interest rate increases in the US but remain unchanged in the EMU then the dollar would become more strong in comparison to the Euro.

4. This expectation of appreciation of US dollar in future will lead to more of imports from Europe and the exports to Europe would decrease as all the exporters would wait for the time when dollar value increases.

This expectation would have no current effect on dollar / euro exchange rate.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.