Chapter 8: Problem 33

Which statement would you agree with? (LO2) a) The exchange rate between the dollar and forcign currencies has no effect on our standard of living. b) The exchange rate between the dollar and forcign currencies affects our standard of living only when we travel abroad. c) Our standard of living is raised when we can get more yen, yuan, pounds, and euros for our dollars. d) Most Americans closely follow changes in the exchange rate between the dollar and foreign currencies.

Short Answer

Expert verified

We would agree with statement c) Our standard of living is raised when we can get more yen, yuan, pounds, and euros for our dollars. This statement best acknowledges the connection between exchange rates and the standard of living, although it still simplifies a complex relationship.

Step by step solution

Statement A Analysis

The exchange rate between the dollar and foreign currencies has no effect on our standard of living. This statement ignores the fact that exchange rates influence import and export prices, which can, in turn, impact the overall economy and consumer prices. So, this statement is not accurate.

Statement B Analysis

The exchange rate between the dollar and foreign currencies affects our standard of living only when we travel abroad. While it's true that exchange rates directly affect the cost of goods and services in foreign countries when traveling, they also indirectly impact our economy in various ways (e.g., exports, imports, and price levels). Hence, the statement is not completely accurate.

Statement C Analysis

Our standard of living is raised when we can get more yen, yuan, pounds, and euros for our dollars. A stronger dollar generally means that imported goods and services will be cheaper, which can lead to lower prices for consumers and potentially increase our standard of living. However, it might also hurt domestic producers and exports, so the overall impact may not be entirely positive. This statement could be considered more accurate than the others, as it acknowledges the effects of exchange rates on the standard of living, but still simplifies the complexity of the relationship.

Statement D Analysis

Most Americans closely follow changes in the exchange rate between the dollar and foreign currencies. While the exchange rate is undoubtedly important, it is questionable whether most Americans follow these changes closely. This statement doesn't directly address how exchange rates impact our standard of living, and might not be relevant for everyone. Therefore, we don't need to agree with this statement. Based on the analysis, we choose the following answer: