Question

when exports of american goods increase, this ______ the demand for u.s. dollars and at the same time ______ foreign currencies.

decreases; increases the supply of
increases; decreases the supply of
increases; increases the demand for
increases; increases the supply of

Explanation:

Analyze the effect on demand for U.S. dollars

When foreign buyers purchase more American goods (exports increase), they must pay for these goods using U.S. dollars. Consequently, foreigners must trade their own currencies to acquire U.S. dollars, which increases the demand for U.S. dollars in the foreign exchange market.

Analyze the effect on supply of foreign currencies

To obtain the U.S. dollars needed to buy these American exports, foreign buyers must supply (sell) their own national currencies on the foreign exchange market. Therefore, an increase in American exports simultaneously increases the supply of foreign currencies.

Match with the correct option

Combining both effects:

• First blank: "increases" (the demand for U.S. dollars)
• Second blank: "increases the supply of" (foreign currencies)

This corresponds to the option: "increases; increases the supply of".

Answer:

• decreases; increases the supply of
• increases; decreases the supply of
• increases; increases the demand for
• increases; increases the supply of (Correct answer)