Question

All else equal, an appreciation of the U.S. dollar against the euro makes

U.S. goods cheaper in everywhere other than Europe.

European goods more expensive in the U.S. and U.S. goods cheaper in Europe.

both European goods and U.S. goods cheaper in the U.S.

both European goods and U.S. goods more expensive in the U.S.

European goods cheaper in the U.S. and U.S. goods more expensive in Europe.

Answer 1

Appreciation of Dollar against the Euro. In this case (the exchange rate increases) the relative price of domestic (US) goods and services increases while the relative price of foreign goods and services decreases.

In other words appreciation in Dollar makes Imports cheaper and Exports dearer. Hence due to Dollar appreciation Import increases and export decreases.

Here Euro(€) has depreciated against Dollar($). Therefore the relative price of domestic(europe) goods and services will decline while foreign goods and price will increase. Hence, US goods are not cheaper anywhere including Europe. First option is incorrect.

Dollar appreciation makes US exports dearer and Imports cheaper. Therefore European goods are cheaper in US and US goods are dearer in Europe. Hence, US goods are not cheaper anywhere including Europe. Second option is incorrect.

Dollar appreciation makes import cheaper therefore relative price of imported goods and services will be cheaper in US. Hence European goods are cheaper in US. But goods produced in US will be expensive. Third Option is incorrect.

Dollar appreciation makes imported goods and services cheaper and domestically produced goods and services expensive. Fourth option is incorrect.

Due to $ appreciation the relative price of goods and services imported in US will be cheaper. The goods and services produced in US will become expensive in Europe. Hence, European goods cheaper in the US goods and US goods more expensive in Europe.

Last option is correct.