Suppose there is an increase in the average level of income in the United States, while the average level of income stays the same in countries that use the Euro as their currency.

a) Describe and illustrate with graph the impact on the exchange rate between U.S. dollars and Euros.

b) Did the U.S. dollar appreciate, depreciate or neither? Did the Euro appreciate, depreciate or neither? Was the change in the exchange rate associated with a good thing or a bad thing for the United States?

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a An increase in the average level of income in the United States while the average level of income stays the same in Eurozone countries can have an i... View the full answer