Question

What happens to the value of the dollar if the European Central Bank (ECB) increases its money supply and lowers interest rates? How will this impact the value of the dollar, exports and imports, AD and GDP?

Answer 1

if European Central Bank increases the money supply and decreases the interest rate it would mean that the European Euros will be decreasing in its value against the United State dollars and it would also mean that United States dollars is appreciating against the European dollars and it would mean that the import of other countries goods will be increasing in America because European goods have gone cheaper and American goods has gone relatively costlier so there would be lesser demand for American goods and exports of American goods will be lower

American dollars will be appreciating against the European Euros and the overall Gross Domestic product of America will be increasing because of the appreciation of the dollars and higher imports and value of the domestic goods will be increasing due to to appreciation in domestic currency.