"If the dollar loses value in comparison to other currencies, this will cause which one of the following?
a. the demand for the dollar to decline and encourage investment in the US economy
b. the demand of the dollar to increase and encourage investment in the US economy
c. the demand for the dollar to increase and discourage investment in the US economy
d. the demand for the dollar to decline and discourage investment in the US economy."
The answer is supposed to be D but I have two major questions.
- wouldn’t demand for the dollar INCREASE because American goods are now cheaper?
- what is the relationship between the value of the dollar and investment? I know that foreigners will increase their demand for US currency if real interest rates rise, but I don’t understand the connection between the valuation of currency and foreign investment.
To anyone who answers, thank you so much!!!