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