Question

A weakening of the u.S. Dollar with respect to the british pound would likely reduce the u.S. Exports to britain and increase u.S. Imports from britain. (a) true (b) false

Answer 1

Answer:

(b) false

Explanation:

When the currency of country A gets weaker with respect to country B. Country A will need more of its currency for the same amount of currency of country B.

Let:

USD = US Dollar

GBP = Great Britain Pound

When USD weakens with respect to GBP, it means that:

You will get more or need more USD for 1 GBP

When USA exports, it will price its goods in GBP. Hence, US exporters will get more USD per GBP. This will increase exports as exporters will now get more USD for the same price in GBP.

On the other hand, when USA imports from GBP, it will need to pay more USD per GBP. Hence, importers will have to pay more USD per GBP. This will cause imports to decrease.

In general, a weak currency will result in higher exports and lower imports.