managerial economics_5 - A decline in U.S. consumer incomes...

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3. True or false? “U.S. exports create a demand for foreign currencies; foreign imports of U.S. goods generate supplies of foreign currencies.” Explain. => False. U.S. exports create a domestic supply of foreign currencies, not a domestic demand for foreign currencies. And the thing generates a supply of foreign currencies would be the foreign demand for dollars from US exports. Would a decline in U.S. consumer income or a weakening of U.S. preferences for foreign products cause the dollar to depreciate or appreciate?
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Unformatted text preview: A decline in U.S. consumer incomes or a weakening of U.S. preferences for foreign products would reduce U.S. imports and U.S. demand for foreign currencies. So, these currencies would depreciate and the dollar would appreciate. Other things equal, what would be the effects of that depreciation or appreciation on U.S. exports and imports? Dollar depreciation means U.S. exports would increase and U.S. imports would decrease. Dollar appreciation means U.S. exports would decrease and U.S. imports would increase....
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