Social Studies Praxis Practice Test

If the international value of the United States dollar weakens in the foreign exchange markets, which of the following will occur?

1. United States exports will increase.

2. United States imports will increase.

3. The supply of the dollar will increase.

4. The United States trade deficits will increase.

The correct answer is: United States exports will increase.

When the international value of the United States dollar weakens, it means that the dollar has less purchasing power compared to foreign currencies. As a result, goods and services produced in the United States become cheaper for foreign buyers. This makes American products more competitive in the global market, leading to an increase in demand for U.S. exports. Conversely, a weaker dollar makes imports more expensive for consumers and businesses in the U.S., which can result in a decrease in the quantity of imported goods. The money supply of the dollar may not necessarily increase with a weakened dollar; it reflects broader economic activities rather than just currency valuation. Similarly, trade deficits can often improve when exports rise, as the increased export activity can offset some of the costs associated with higher import prices. Therefore, an increase in U.S. exports is the most accurate outcome of a weakened dollar in the foreign exchange markets.