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Other things being equal, an increase in the U.S. rate of inflation is likely to cause...

Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the

(a) international value of the U.S. dollar.

(b) quantity of U.S. imports.

(c) quantity of U.S. exports.

(d) demand for U.S. dollars.

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Answer #1

ANSWER : Other thing being equal , an increase in the U.S rate of inflation is likely to cause an increase in the (b) quantity of U.S imports . A increasing rate of inflation in the U.S compared to other countries will tend to reduce the international value of doller because high inflation means that U.S goods increase in price quicker than other countries goods. Therefore U.S goods become less competitive . Demand for U.S export fall , and therefore there will be less demand for doller . Also , U.S consumers will find it more attractive to buy foreign imports. Therefore they will supply doller to buy imports . This increase the supply of doller and decrease the value of doller in the interenational market.

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