Question

Which of the following will likely cause the U.S. dollar to increase in value relative to other currencies?

a. Higher taxes
b. Lower interest rates
c. Increased government spending
d. Higher U.S. prices

Answer 1

Lower interest rates will likely cause the U.S. dollar to increase in value relative to other currencies.

Step-by-step explanation:

The U.S. dollar is likely to increase in value relative to other currencies when there is a decrease in supply or an increase in demand for dollars. In this case, the correct option would be b. Lower interest rates.

Lower interest rates make U.S. assets less desirable compared to assets in other countries, leading to a decrease in demand for dollars and an increase in the supply of dollars in foreign currency markets. As a result, the value of the dollar decreases relative to other currencies.