If the inflation rate in the U.S. increases (and in the European Union stays the same), how will that change the demand and supply of US dollars exchanged in the foreign exchange
market?
It will decrease the demand for Dollars and increase the supply, so the Dollar/Euro exchange rate decreases, and the quantity traded decreases.
It will increase the demand for Dollars and decrease the supply, so the Dollar/Euro exchange rate increases and the impact on the quantity traded is unknown.
It will decrease the demand for Dollars and increase the supply, so the Dollar/Euro exchange rate decreases and the impact on the quantity traded is unknown.
It will increase the demand for Dollars and decrease the supply, so the Dollar/Euro exchange rate decreases, and the quantity traded increases.
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