5 Steps to a 5 AP Macroeconomics 2019

International Trade ❮ 167

Appreciating and Depreciating Currency

If the U.S. economy is strong, Americans increase their demand for European goods and ser-

vices. As American consumers increase their demand for the euro, they increase the supply of

dollars in the foreign exchange market; the dollar price of a euro rises, and the euro price of a

dollar falls. The euro as an asset is appreciating in value, and the dollar as an asset is depre-

ciating in value. The changing value of euros and dollars is seen in Figures 12.7 and 12.8.

KEY IDEA

Se

De

Quantity of euros

Dollar price

of a euro

$2

Qe

Figure 12.5

Figure 12.7

Figure 12.6

S$

D$

Quantity of dollars

Euro price

of a dollar

1/2 euro

Qe

Se

De

Quantity of euros

Dollar price

of a euro

$2

Qe

De’

$2.50