Question

​Real-Time Data Analysis​ Exercise* When the euro was introduced in January​ 1999, the exchange rate was​ $1.19 per euro. In March 2018​, the exchange rate was $ 1.23 per euro. ​*Real-time data provided by Federal Reserve Economic Data​ (FRED), Federal Reserve Bank of Saint Louis. For U.S. firms exporting goods and services to​ Europe, this change in the value of the euro was

A. bad news because one euro would buy more ​dollars, making U.S. goods more expensive for European buyers.

B. good news because one euro would buy fewer ​dollars, making U.S. goods more expensive for European buyers.

C. bad news because one euro would buy fewer ​dollars, making U.S. goods less expensive for European buyers.

D. good news because one euro would buy more ​dollars, making U.S. goods less expensive for European buyers.

Answer 1

Solutions:

Here, answer would be option “D” .

Reason:

The above-mentioned situation attributed to the depreciation of US dollars vis-a-vis Euro. It means the value of dollar has declined over the years. This makes US goods more cheaper in the European market. When the price of US produced goods falls in the market then there would be rise in demand for US commodities in the market that will leads to a rise in production of US commodities. Therefore, from the point of view of US firms this would be good news. This process always acceptable in short-run but in long run it adversely affects the market.