If the British pound and Euro are both appreciating relative to the dollar, how does this...

If the British pound and Euro are both appreciating relative to the dollar, how does this impact exports and imports, AD and GDP? What should the Fed. due to respond?

Expert Solution

If the British Pound and Euro are both appreciating relating to the dollars, it would mean that American goods are cheaper because the currency has gone cheap and it would mean that there would be a higher exports from United States of America to these countries like Britain and Europe so it would help in gaining a higher amount of foreign currencies.

Imports will be decreasing because the foreign goods will be e relatively costlier and exports will be increasing because domestic goods will be cheaper.

It would also mean that there would be a decrease in the American Dollars and there would also be a decrease in the subsequent Gross Domestic product of a nation because the domestic currency has decrease subsequently and it would be leading into the overall decrease in the value of domestic goods in America so exports will be increasing and America dollars will be depreciating and it will also mean that Gross Domestic product will also be depreciating.

Federal Reserve will be trying to intervene into the currency Markets and they will be trying to sell the Euros and the Britain pounds in order to increase the domestic currency value or they can also buy the the American Dollars.

jeff jeffy answered 2 years ago

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