Question

In the open-economy macroeconomic model, if for some reason foreign citizens want to purchase more U.S. goods and services at each exchange rate, then a. the demand for dollars in the market for foreign-currency exchange shifts right. b. the demand for dollars in the market for foreign-currency exchange shifts left. c. the supply of dollars in the market for foreign-currency exchange shifts right. d. the supply of dollars in the market for foreign-currency exchange shifts left.

Answer 1

Answer: a. the demand for dollars in the market for foreign-currency exchange shifts right.

Step-by-step explanation:

If foreigners wanted to buy more U.S. goods and services, they would demand more dollars to do so as U.S. goods and services are denominated in dollars. This would shift the demand curve for U.S. dollars to the right to reflect the increase.

With the demand curve having shifted right, it will intersect with the supply curve at a higher rate. This new equilibrium point would mean a higher exchange rate which means the U.S. dollar would get stronger.